WPP resumes negotiations to acquire Y&R

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WPP Group has reopened talks with Young & Rubicam and could be close to an agreement in principle to acquire the communications company.

The deal would be the richest ever in the advertising business and create the world's largest advertising company, with worldwide revenue of $6.7 billion.

Publicis, too, remains in the fray and could make an offer early this week. But it's not clear whether the French agency giant -- which has been on an aggressive U.S. expansion tear -- has the stomach for a prolonged takeover battle.

WPP announced to the London Stock Exchange on May 5 that talks had resumed, just days after it announced discussions had broken down. WPP and Y&R executives met into the late afternoon on May 5, and those close to the talks described them as constructive.

$5.4 BILLION OFFER

WPP's offer is said to stand at 0.83 shares of WPP stock for each share of Y&R stock. Based on WPP's May 5 closing price, the deal would value Y&R at $62.67 a share, or $5.4 billion. Y&R shares rose 9% on May 5 to close at $54.12.

Salomon Smith Barney's analysis of Y&R quarterlies values the agency at $70 a share or $6.05 billion. One financial consultant, who requested anonymity, predicted the final sale price would be negotiated closer to $65.

Publicis was approached by Y&R as an alternative to WPP after earlier talks bogged down over various issues, particularly how the company would be managed after the acquisition. One executive close to Publicis said last week that a deal "may not make sense" now that WPP has re-emerged.

The original WPP contract would have installed Y&R CEO Tom Bell as chairman of WPP, although it's unclear whether that would still happen. The contract calls for setting up a four-person integration committee to run Y&R for one year after the deal. The committee likely would be made up of WPP Chief Executive Martin Sorrell, WPP Group Finance Director Paul Richardson, Mr. Bell and Y&R Chief Financial Officer Mike Dolan, who would become CEO of Y&R.

STICKING POINT

One of the sticking points when the talks first collapsed concerned who would make final decisions if the committee was split on a vote. Y&R had wanted that power to reside with Mr. Dolan, a stance it apparently has dropped.

Sir Martin and Publicis CEO Maurice Levy were both in New York May 5, and both spent a good part of the day in meetings with top Y&R executives.

The late-week developments marked a sharp turnaround from the bitter collapse of the talks late in the evening of April 28. During an address to the Capital Roundtable at New York's Yale Club on May 4, Sir Martin remarked wistfully that WPP and Y&R would have made a good fit. But in a possible prelude to the next day's announcement, he left that meeting with Ed Ney, chairman emeritus of Y&R.

Industry observers believe a pact is now close and could be announced this week.

"If they've announced they're going back at it," said one executive familiar with the talks, "it's a done deal. . . . It would look embarrassing if this fell apart again."

`BRILLIANT' PLAY

"He played it brilliantly," said the financial executive who requested anonymity, speaking of Sir Martin. "He put this company in play, caused all this disarray, gave them a chance to make a friendly deal with a very attractive price in mind. When he saw some greed setting in, he stepped back and said, `Fine. You guys are going to have to explain to your shareholders why this original deal wasn't good for them.'

"So he lets Publicis go in and lets the market decide which deal it likes better and the market basically said, `We hate -- we don't dislike, we hate -- the Publicis discussions.' And now he comes back in and he will get it for a price that is dramatically less than he was willing to pay."

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