Arun Sudhaman 15 Apr 2012 // 11:00PM GMT
LONDON--WPP has raised its stake in Chime Communications to more than 20 percent, as Bell Pottinger prepares to buy itself back into private ownership.
As disclosed by industry research newsletter Marketing Services Financial Intelligence (MSFI), WPP's increasing investment in Chime began last December, when the giant holding group upped its stake above the historic level of 15 percent.
Since then, Chime has revealed that board members Lord Bell and Piers Pottinger are exploring a buyout of some of the group’s PR holdings, which is expected to focus on Bell Pottinger-branded businesses.
The increase in WPP’s stake entitles the company to increase its board representation at Chime from one to two nominees.
MSFI editor Bob Willott notes that WPP’s buying activity has previously been justified as a response to the dilution of WPP's stake, caused by share issues to vendors of companies Chime has acquired.
“However, that explanation began to lack credibility as the share buying has continued”, notes Willott.
Instead, Willott believes that WPP’s buying is “influenced” by the proposed MBO. WPP is not under any obligation to make an outright bid for Chime unless its shareholding passes the 30 percent mark, but CEO Sir Martin Sorrell has previously stated his opposition to the buyout.
“I think it sets a terrible precedent,” Sorrell told the Evening Standard. “It isn’t logical, and if you start to dismember the management of it, where does that begin and where does that end?”
A source familiar with the situation, however, told the Holmes Report that buyout plans are proceeding, and that all parties are satisfied with the proposed split. The deal is expected to be consumnated next month, added the source.
"We're increasing our investment as it's a good one," a WPP spokesperson told the Holmes Report.