Omnicom Group (OMC) is acquiring Interpublic Group (IPG) in an all-stock transaction, offering 0.344 shares of OMC for each share of IPG. The two advertising giants announced the deal on December 9, 2024.

The current deal spread is approximately 1%, with the transaction expected to close by year-end. This does not include the dividends which benefit the IPG holder.

OMC has a market capitalization of $14 billion, while IPG is valued at $10 billion.

Following the announcement, passive ownership in IPG declined significantly, with a loss of around 40 million shares. Long investor concentration also decreased.

Short interest in OMC has increased by 18 million shares—rising from 5% to 14% nearly three times that level—as arbitrageurs established positions by buying IPG and shorting OMC.

The 18 million shares shorted in OMC correspond to approximately 52 million shares of IPG on a deal-adjusted basis.

If the transaction closes as anticipated, short interest is likely to revert to pre-deal levels as arbitrage trades unwind and short positions are covered by the corresponding long positions.

The combined float will nearly double, with the short interest from the target (IPG) incorporated into the new entity. Both components are expected to stabilize around 5%.

The gross deal spread narrowed significantly in June, tightening from 7% to 1%.

Index funds are not required to take any action in either stock upon deal completion, although IPG will be removed from the S&P 500 and replaced by a new constituent.

OMC currently has a Crowded Score of 60 and a Squeeze Score of 60, with a recent peak of 72.5. However, these metrics may be misleading.

As long as the merger proceeds as planned, losses on the short side are offset by gains on the long side, mitigating the risk of a short squeeze.

These scores become relevant only if the deal breaks and the short positions are left unhedged or naked.

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