WPP-Y&R talks break down; Publicis discussions continue

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Talks for WPP to acquire Young & Rubicam broke down bitterly this past weekend. Y&R intensified its discussions with a rival bidder, Publicis, as a result. But those talks could be clouded by a warning signal from Ford Motor Co., Y&R's largest client, which is concerned about a conflict with Publicis client Renault.

WPP and Y&R were close to reaching an agreement that would value Y&R at about $5.5 billion. But the talks collapsed over issues of how the company would be managed after the acquisition, and both sides are pointing fingers about which was responsible.

The companies had agreed to form an integration committee made up of four executives who would run Y&R for the first year after a deal. The committee would include two Y&R executives, Tom Bell and Mike Dolan, and two WPP executives, Martin Sorrell and Paul Richardson. A majority would be needed for any major management decisions, making it unlikely that WPP could break apart Y&R or make any other dramatic changes. Under the terms of the deal, Mr. Dolan would run Y&R, reporting to WPP Chief Executive Mr. Sorrell, while Mr. Bell would become WPP Chairman.

But Y&R apparently tried to change the agreement to give Mr. Dolan full management control of the Y&R group in the first year after the merger, and WPP balked. In addition, Y&R executives were said to believe that the one-year stock lockup and non-compete provisions Mr. Sorrell was seeking from top executives was too restrictive.

WPP would be free to make a hostile offer for Y&R if an agreement is reached with Publicis, which could come as early as today or tomorrow. Friendly talks could also be re-opened if Ford does not agree to the Publicis merger. But for now both sides remain bitter and pessimistic about the possibility of a WPP-Y&R combination.

Copyright May 2000, Crain Communications Inc.

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