Pressure on WPP to divest eases up now

With the talks between Scali, McCabe, Sloves and Lowe Group on life support, analysts said that SMS parent WPP Group PLC is not under the same financial pressure to divest as it was when the talks first came to light.
That is not to say the company has emerged from its fiscal woods, but should the deal unravel, the impact on WPP has lessened.
“It will be a little bit of a blow, but not enormous,” said David Grimbley, an analyst with Hoare Govett in London. “(WPP’s) position is stronger. The Scali deal wasn’t out of desperation. It would have been nice.”
Since WPP began talks with IPG 18 months ago, WPP’s financial picture has brightened. The parent company of Ogilvy & Mather, J. Walter Thompson and SMS is better positioned to make a 1994 debt payment of $150 million even without the sale of SMS, according to analysts.
A major factor alleviating some financial pressure was the rights issue earlier this year that raised some $120 million.
“(The SMS sale) is not as crucial because of the rights issue,” said Neil Blackley, an analyst at James Capel, London.
Sources said the value of the SMS deal is about $75 million with $25 million of that in cash. They said that, barring any surprises, WPP will be about $20 million short for its July 1994 debt payment next year. But analysts point out that WPP still has other options.
Sources said these include the often rumored sale of its market research operations. Another is a subordinated debt issue, that combined with the earlier rights issue, should steer WPP clear.
If the Scali/Lowe deal does fall through, it is believed that WPP would continue to seek a buyer for the SMS network.
Copyright Adweek L.P. (1993)