M&C Saatchi PLC (LON: SAA) shares are definitely now in play. That’s why they’re up 22% in the past couple of days including more than 8% this morning. There’s been some stake building by Vin Murria along with a preliminary approach about a possible bid.
The background to this is that advertising took a terrible hit during the pandemic. Yes, sure, the government was splashing out hundreds of millions on telling us all to stay home and all that but then, government often too usually is the largest advertiser anyway. Everyone else though was slashing their ad spend.
The logic should be fairly obvious. It’s true that household incomes didn’t fall all that much – they actually rose in the US – and savings rates have boomed. But that second also means that people are spending much less. It’s also true that it was near impossible to actually spend upon many services so that spending had to be entirely curtailed.
Which brings us to one of the truths about advertising – something that M&C Saatchi have long lived by – which is that advertising spend isn’t so much to generate demand in general, it’s to direct extant demand to one’s own products. If demand falls off you don’t, therefore, advertise more because you’re not creating it in the first place. You’re trying to direct it and why bother if it’s not there?
Lockdown, therefore, hit advertising businesses like M&C Saatchi hard. A standard market analysis says that when such cycles turn in an industry then it’s possible – not certainly possible but possibly so – to pick up prime assets on the cheap. Which is how we might view this idea of an approach for M&C Saatchi from Vin Murria.
There’s been some stake building in M&C Saatchi which is detailed here and here. Whole percentage points of the outstanding issue of M&C Saatchi shares were being bought in the market and leading to a near 10% stake. At which point, clearly, the buyer has to identify himself and declare his interest. Is this just buying the stock, as an investment? Or is there some grander plan concerning the target, here the target being M&C Saatchi the company?
The answer coming this morning. It’s all a little tentative at present, as such things are at this stage. There has been a “preliminary approach” which “may or may not lead to an offer for the company”.
The M&C Saatchi share price is likely to be volatile from here on in. Assuming that the company is a prime asset going cheap for cyclical reasons it’s possible that there will be a generous bid from Murria and associated companies. Or, if the underlying value is thought to be very meanly priced at present that the company is in play might bring out another bidder. That 10% Murria stake would be an interesting starting point for another bidder after all.
M&C Saatchi is definitely in play now the interesting part is going to be how long the game will run.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.