Fitch may cut WPP

Fitch Ratings said it placed WPP Group plc's BBB+ long-term issuer default and senior unsecured ratings on Rating Watch negative. The action follows news of a formal competing offer by WPP for Taylor Nelson Sofres plc for £1.08 billion in cash and shares.

The negative Rating Watch highlights the fluidity of the situation. If this offer is not accepted, Fitch said WPP could, from a regulatory standpoint, still increase its bid.

Under the current offer terms, an immediate downgrade is unlikely. The current proposal does, however, stretch leverage metrics to the limits acceptable for a BBB+ company with WPP's risk profile, the agency said, and gives it less flexibility to weather what could be a difficult period for the advertising industry.

A major factor in Fitch's decision to tolerate any sharp increases in leverage following an acquisition is the strategic rationale for that acquisition, which is, in this case, compelling, the agency said.

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