WPP Agrees To Buy Y&R For $4.7 Billion
By Matt Paolucci
British advertising giant WPP Group (WPPGY) agreed on Friday
to acquire U.S.-based rival Young & Rubicam (YNR) for $4.7
billion in stock, creating the world's biggest advertising
company.
The deal brings together WPP's U.S. agencies J Walter Thompson
and Ogilvy & Mather with Y&R. The combination will undoubtedly
result in a powerful force in public relations, with Y&R's
Burson Marsteller and WPP's Hill & Knowlton.
The two will invariably dominate in areas such as research,
media buying and direct marketing.
The acquisition will allow WPP, currently ranked world No. 3
in the advertising business, to leapfrog Omnicom Group (OMC)
and Interpublic Group of Companies (IPG) as the industry's
800-pound gorilla.
Y&R shareholders will be offered 0.835 new WPP American
depositary receipts or 4.175 new WPP ordinary shares for each
Y&R share, valuing Y&R shares at $53 each for a total $4.7
billion, based on Thursday closing prices.
"This is quite a coup for (WPP CEO) Martin Sorrell considering
the offer values Y&R at only a 10 percent premium to its
last traded price," said Anthony de Larrinaga, analyst at SG
Securites. Sorrell raised his rating on WPP to "outperform"
from "hold" in the light of the takeover.
If the deal for some reason were to go awry, Y&R has agreed to
pay WPP $175 million if it causes the deal to fall through,
while WPP would pay Y&R approximately $75 million if the
transaction fails.
Agreement on the takeover terms came two weeks after the U.K.
company walked out of the first round of talks due to Young &
Rubicam's demands for autonomy, coupled with WPP's proposals
for tough limits on executives who leave Y&R after the deal.
The break in negotiations gave French advertiser Publicis the
opportunity to hold acquisition talks of its own with Y&R, one
of the oldest advertising firms in New York City. But those
discussions failed because Y&R's contract with Ford Motor (F),
a hefty 10 percent contributor to Y&R's total revenue, clashed
with the client lineup at Publicis.
WPP said the deal would create significant savings with at
least $30 million of cost synergies identified to date, and
the London-based advertising group expects the takeover to be
accretive in the first full year.
With proforma 1999 revenues of $5.2 billion, the combined
company will have almost 50 percent of its business coming
from the United States and $2.4 billion of revenues from
advertising.
The client base of the combined WPP-Y&R would be anchored by
global behemoths such as AT&T (T), DuPont (DD), and American
Express (AXP). WPP's previous work for AXP included a popular
series of commercials featuring comedian Jerry Seinfeld.
Young & Rubicam shareholders will end up with one-third of the
combined company. Tom Bell, now CEO of Young & Rubicam, will
become the unit's chairman, while Y&R Finance Director Mike
Dolan takes over as CEO.
WPP and Y&R's current client billing, the value of all its
outstanding customer contracts, now tops $28 billion.
Interpublic Group's is second, with about $25 billion, and
Omnicom third, with $16 billion.
The acquisition "may trigger further consolidation in our
industry," Sorrell told analysts. He added that the takeover
was driven by "consolidation at the client level" and a need
to become a key player in the Internet market, by
strengthening its online advertising and Web development
businesses.
WPP said it expects to generate Internet-related revenue of
about $966 million this year. Overall sales last year were
$3.4 billion.
Sorrell would not comment on whether combining the two
advertising companies' client lists would lead to any
conflicts. Clients in similar sectors for a combined WPP-Y&R
include Anglo-Dutch consumer products leviathan Unilever (UN)
and U.S. rival Colgate (CL).
Shares of YNR were down $1.81 to $46.56 in late day trading.
WPPGY shares were also lower, down $4.69 at $58.81.
