Activist hedge fund Elliott Management has taken a 6.7 percent stake, worth about $570 million, in advertising firm Interpublic Group of Cos Inc (IPG.N), setting up a showdown that could result in a sale.
The $24 billion hedge fund run by Paul Singer disclosed in a regulatory filing on Thursday that IPG's shares "are undervalued and represent an attractive investment opportunity." Elliott said it wants to "engage in a constructive dialogue" with the company's board of directors to maximize shareholder value.
A source familiar with Elliott's position in the U.S.-based advertising firm, that includes the agencies McCann Erickson and FCB, said it is gearing up to push the company on the auction block, hoping to attract IPG's larger competitors as buyers.
IPG shares were up 1.5 percent at $20.15 in morning trading. A spokesman did not respond to a request to comment.
IPG is the No.4 ad firm in the world, with a market value of $8.4 billion. WPP (WPP.L) is the largest agency, followed by Omnicom and Publicis.
"It seems reasonable to conclude there is interest in creating a process to sell IPG," said Brian Wieser, an analyst with Pivotal Research Group. "One of the big challenges in trying to do this with a big agency holding company is that it can be very disruptive to existing business."
Wieser thinks that Japan's Dentsu Aegis (4324.T) is the most likely bidder for IPG.
IPG has long been rumored as a takeover candidate and the speculation has only increased as the advertising sector consolidates. France's Publicis (PUBP.PA) and U.S.-based Omnicom (OMC.N) planned to merge in a $35 billion deal that would have resulted in the world’s largest advertising agency, billing it as a better way to compete in the digital arena.
That potential marriage collapsed as the two companies clashed on culture and couldn’t agree on leadership or structure.
The consolidation points to the enormous pressures that traditional ad firms are facing from digital platforms like Facebook (FB.O) and Google (GOOGL.O), tech giants like Oracle (ORCL.N) and Adobe (ADBE.O), as well as a host of VC-funded start-ups focused on turning the process of buying and selling ads into one that resembles electronic stock exchanges.
IPG's clients include General Motors (GM.N), Unilever (ULVR.L) and Johnson & Johnson (JNJ.N).
This is the second bet this week by Elliott Management, which invested more than $1 billion in data storage products maker EMC EMC.N with an aim to push it to spin off its VMware unit.
(Reporting by Liana B. Baker and Jennifer Saba; Editing by Nick Zieminski)