Institutional shareholders are not best pleased at WPP Group’s all-paper acquisition of Young & Rubicam. Of particular concern is the deal’s timing, coincident with the peak of the economic cycle - a deal too far, according to one unnamed punter: "Last time WPP made a large advertising agency acquisition, Ogilvy & Mather [in 1989], it was at the top of the advertising cycle and it nearly crippled them."

Other investors are equally concerned that US shareholders in Young & Rubicam may be averse to holding shares in a UK-quoted company, resulting in a potential sell-off of WPP's shares when the deal is done. Says Vanessa James, director of UK equities at Legal & General Investment Management: “There might well be some concern in the market that the holders of Y&R's shares might not want WPP paper".

WPP's share price has fallen by 27% since news of its merger talks came to light five weeks ago. Shares were 6p down on the day yesterday at 797p – the first time they have closed below 800p since November last year - and well below the record closing high of 1323.5p on March 6.

Chief executive Sir Martin Sorrell attributes the collapse to heavy arbitrage triggered by press speculation over the merger; also by worries over the amount of WPP stock that will be issued to complete the deal.

WPP is expected to start a damage limitation exercise in the near future, putting the arguments in favour of the merger to City analysts and investors.

News source: Financial Times