The investment bank warned that WPP may make significant staff cuts, suggesting a figure as high as 10%, and said it now estimates that the incremental costs of redundancy was likely to push Ebitda margins to below its target of 15% to 14.5%.
This morning, WPP shares were trading up 3.13% at 544.5p, having opened at 528p. At one point they dipped as low as 515p.
Analysts are looking to WPP as the first real indicator of the weakness of the advertising market following the terrorist attacks on the US last month. Morgan Stanley has reduced its earnings-per-share 2001 estimates by 6% to 29.5p from 31.3p and cut its estimates for 2002 to 28.9p from 35.3p.
The cut in expectations has been made assuming that WPP's acquisition of media-buying group Tempus does not go ahead.
Yesterday, WPP extended its bid for Tempus until October 22 while it continues talks with City regulator the Takeover Panel about a possible move to abandon the deal. WPP is seeking the consent of the Takeover Panel to invoke the material adverse change condition in relation to the deal. It is arguing that the situation has significantly worsened since the events of September 11.
It is seen as unlikely that the Takeover Panel will accept WPP's argument, which is likely to centre on the tumbling value of advertising and media stocks. In the event that the deal goes ahead, Morgan Stanley sees the situation as being made worse, impacting further on already weak earnings for next year.
However, for the material adverse change argument to be successful, the Takeover Panel will have to see evidence that profits are set to dive at Tempus by at least 20%. Analysts are suggesting that Tempus may be down by only 10%.
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