Shares in WPP group (LON:WPP) drifted lower today after the world’s largest advertising agency yesterday revealed that three of its subsidiaries have been ordered to give evidence by the US Department of Justice (DoJ) for an alleged price-fixing probe.
The move saw millionaire Sir Martin Sorrell's advertising agency join US rival Omnicom Group (NYSE:OMC) and France’s Publicis SA in the list of the agency groups to which the DoJ has issued subpoenas over potential anti-trust issues relating to practices surrounding video production.
WPP, which owns agencies including Young & Rubicam and Ogilvy & Mather, did not reveal which firms were involved but said it was 'fully co-operating' with the inquiry.
READ: Omnicom probed by US DoJ ...
In a note to clients today, analysts at Liberum Capital said: “At this stage, it is unclear where this investigation will head but there are obvious risks to the agency names.”
They added: “According to trade press reports, the DoJ investigation is focused on whether ad agencies rigged production contracts, either by misleading independent producers about the rates clients would pay for their services or asking independents to inflate the prices quoted as a favour to the agencies to help the latter win the business.
“The reports state that the practices are considered ‘normal' industry practice.”
The Liberum analysts said there is an obvious risk that the investigation “turns into a major probe into the agency space, especially after the recent ANA report on media buying practices have already caused some to question agency practices;”
They added: “It seems unlikely the investigation will be resolved any time soon and seemingly is widening into a general industry issue.
“Short term, it is likely to impact sentiment towards agency names while, over the medium-term, the concern would be over potential fines and/or other measures by the DoJ, as well as reputational risk and/or clients taking legal action over.”
Liberum reiterated its ‘hold’ rating and 1.900p price target on WPP shares. In late morning trading, the stock was down 8p at 1,774p having closed fairly flat yesterday after an initial drop.