Why Publicis May Beat WPP to Razorfish

(MoneyWatch)  Publicis could be a likely buyer for Razorfish now that Microsoft -- which acquired the digital shop in its aQuantive buy -- wants to sell it, the FT reports:

One analyst valued Razorfish at $600m-$700m, based on sales of about $400m last year and profit margins for similar businesses of 12-13 per cent.

The other networks will likely take a look at the books, even if only out of curiousity. Digital shops are about as cheap as they're going to get. We're at the bottom of a recession, and Q2 2009 revenues will probably be worse for most agencies like Razorfish. But recovery in 2010/2011 seems probable, and that means the expiry date for discounts on acquisitions is ticking loudly.

Publicis CEO Maurice Levy's interest in Razorfish is hobbled slightly by S&P's downgrading of its credit quality, based on its exposure to General Motors. Which makes me think the ever-acquisitive WPP chief, Martin Sorrell, may step in. Sorrell loves debt. He just took on $600 million more; and WPP doubled its debt load in Q1 2009 with the TNS acquisition.

BNET has previously noted that Sorrell appears to like debt because interest payments reduce his tax obligations even though the payment burden forces him to lay off staff to keep expenses down.

But WPP stock has clawed back some of its losses in recent weeks. Would Sorrell want to damage that, especially now his $95 million bonus package is heavily tied to keeping that price up?

• See previous coverage of WPP:
• WPP's Sorrell on Y&R Lawsuit: "Bring It On!"
• WPP: Sorrell Sees No New Client Dollars; Layoffs Possible in Europe; Zimbabwe Eyes an Opportunity
• Could WPP Chief Sorrell's Successor Be Lord Stephen Carter?
• WPP Stock Down 11% as CEO Sorrell Gets $95 Mil. Pay Package. Coincidence?
• At WPP, Sorrell's $95 Mil. Pay Package Gathers More Foes -- But Passes Anyway
• WPP's Sorrell Wants $95 Million Pay Package; Sparks Protest at "Unnecessarily Complex" Scheme
• WPP Alleges "Secret Payments" Spoiled Deal With George Patterson, Communications Group
• WPP's Sorrell Dusts Off Latest Wacky Recovery Metaphor: "An Italic L, Flipping Up"
• Sorrell Prepares to Leave WPP Amid 7,000 Layoffs
• WPP Q1: Debt Doubles; "It's All Lehman Brothers' Fault"

Image of Razorfish office by Flickr user erokcom, CC