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SHANGHAI surprise? News this week that WPP Group, the FTSE-100 marketing services group, had sacked a staff member at GROUPM, its global media-buying operation, in China amid a bribery investigation is a reminder of the perils of doing business in the world's most populous nation.

Might it also, though, draw attention to the valuation travails being endured by its London-listed parent? As City bankers look enviously across the Atlantic at a slate of megadeals - the latest of which arrived on Monday with Chevron's $53bn tilt at rival oil producer Hess - they are having to console themselves with mere morsels here.

The few potential exceptions to that could include WPP, which in recent weeks has become the subject of increasingly frenzied speculation that it is a target for American buyout firms.

The latest names to be linked through the rumour mill to WPP, which reports third-quarter results this morning, are Blackstone and Silver Lake (although both privately seek to distance themselves from such speculation). With a market capitalisation of £7.9bn, and a conventional takeover premium that could add another £2.5bn to that figure, this is not a deal that even the biggest private equity appetite would swallow alone. Add in £3.5bn of net debt at the halfyear, and you're talking about a monster take-private.

Whether debt investors in their current jittery state would even stump up for a leveraged deal of this nature - advertising's fortunes being highly correlated to wider economic growth and sentiment - is debatable.

Nevertheless, WPP is by some measures screamingly cheap. Its shares are down by about 40 per cent since the day Sir Martin Sorrell, the company's founder, stepped down in 2018. It trades at just 3.5 times this year's headline earnings before interest, tax, depreciation and amortisation - less if you add in its share of the profits of Kantar Group, the research business it owns 40 per cent of (a stake probably worth in the region of £1.2bn).

Sorrell was fond of reminding anyone and everyone that he had built WPP into the world's largest marketing services provider. Now, it trails French peer Publicis in market cap terms by a wide margin. As it hunts for a new chairman to replace Roberto Quarta, WPP is probably safe from a private equity approach - for now.

(c) 2023 City A.M., source Newspaper