View from City Road: Taking a big risk on WPP

WITH only nine days to go to the extraordinary shareholders' meeting at which WPP Group's restructuring plans will be put to the vote, the company has been caught in an extraordinary game of brinkmanship. On one side there is Fidelity, the Boston-based fund manager, which has bought nearly 10 per cent of the group's preference shares and is pressing for a better deal. On the other side are the banks, led by Citibank and JP Morgan, which have lent around dollars 1.3bn (pounds 680m) to Martin Sorrell's ailing marketing services group.

The banks have now made explicit what they had always implied - that if preference holders do not approve the restructuring plans, they would place the group in receivership. They have apparently lined up a receiver - John Soden of Price Waterhouse - and outlined their receivership plans. The plans involve separating the holding company from WPP's operating companies, which would be kept intact. Fidelity's answer has been to buy 5 million more preference shares in the past few days at a cost of nearly pounds 2m.

The problem is that not only are the banks not bluffing but, having come up with a plan that they are putting to the meeting, they cannot change it significantly without having to call a fresh meeting needing three weeks' notice. This is unlike the US, where talks continue right up to the vote. Fidelity must know this, so what is its game?

Cynics say that Fidelity hopes to benefit by buying more shares at a lower price and making a bigger profit when the restructuring goes through. But if its brinkmanship fails, WPP in receivership is not going to be worth dollars 1.3bn, so the preference holders will be left with nothing.

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