WPP Group plc's £1.08 billion ($2.13 billion) hostile bid for market search firm Taylor Nelson Sofres plc on Wednesday triggered a warning from rating agency Fitch Ratings. The BBB+ credit rating on the British advertising agency was placed on Fitch's rating watch negative list, signaling a concern of the company's debt levels.
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"Under the current terms of the offer, were the deal to complete, an immediate downgrade is unlikely," Alex Griffiths, senior director at Fitch said in a press release. "The current proposal does, however, stretch leverage metrics to the limits acceptable for a 'BBB+' company with WPP's risk profile, and gives it less flexibility to weather what could be a difficult period for the advertising industry."
That leverage metrics is the debt-to-Ebitda ratio for a BBB+ rated company. In 2006, Fitch said that "ratings could be threatened by financial leverage, measured as average net debt/Ebitda, in excess of 2x". Fitch expects leverage "to peak at around 2x before de-leveraging towards WPP's historic norm closer to 1.5x." - Gerald Magpily
See Fitch press release (registration required)
TheDeal.com: WPP launches hostile bid for TNS
