News of the strategic alliance follows the announcement last week that ad agency Asatsu Inc. is to merge January 1 next year with DaiIchi Kikaku, creating Japan's third largest ad agency.
WPP, the world's second largest ad group, will take a 20% stake worth $208 million in the new agency, which will be named Asatsu. In turn, Asatsu will take stock of equivalent value in WPP, giving it around 4% of the group's enlarged share base.
WPP is expected to buy the shares on September 14 and the issue of 10.3 million new Asatsu shares should increase the Japanese agency's capital from $153.2 million to $256.5 million.
Masao Inagaki, chairman and chief executive of Asatsu, will become chairman of WPP Japan Holdings and join the WPP board as a non-executive director, while Martin Sorrell, WPP's chief executive officer, will join Asatsu's board in a similar role.
The new venture will entail the agencies jointly seeking clients and cooperating on a range of activities, including media planning, buying and research. Both Asatsu and Dai-Ichi Kikaku already work for several WPP clients in Japan, such as Bandai, IBM, Nikon, Unilever and Warner Lambert.
WPP, which points to Japanese multinationals' significant contribution to global marketing spending, says the benefit of the new structure lies in the combination of Asatsu's local strength with WPP's global network and capabilities.
"This move will help us in overseas business, especially in China," Asatsu said in a statement, adding that the increasing globalization of Japan's economy made this type of merger an essential step for the company.
The newly merged Asatsu aims to post sales of $2.61 billion in the year to December 2000, making it the third largest in Japan behind Dentsu Inc. and Hakuhodo Inc. in terms of billings. Asatsu President Tsutomu Takeda will be its head.
The move is expected to intensify competition in the Japanese advertising industry, which is bracing for a downturn because of Japan's moribund economy.
Copyright August 1998, Crain Communications Inc.