Executives close to Y&R said the company is in negotiations with Capital Consulting as part of an effort to strengthen its strategic consulting capabilities. The agency is also believed to have talked with Westport, Conn.-based Meridien Consulting Group.
Y&R executives were not available for comment; a spokesman declined comment, citing securities regulations. Executives at Capital could not be reached by press time.
Industry executives noted that Capital President Jay Bingle is close to Y&R Chief Financial Officer Mike Dolan.
ALREADY HAS LANDOR
Y&R already has a presence in brand and identity consulting through its Landor Associates. But it is looking to expand those capabilities, said Steven Gundersen, CEO of mergers & aquisition consultant banker Gundersen Partners.
Several ad agency holding companies are exploring acquisitions of marketing consultancies or development of in-house units as they face more competition from consultants pushing their way into brand marketing (AA, April 6).
Capital was almost acquired last fall by Cupertino, Calif.-based CKS Group for some $10 million in stock plus unspecified payments pegged to future performance.
Capital -- with clients including IBM Corp., Microsoft Corp. and Morgan Stanley, Dean Witter, Discover & Co. -- would have become a wholly owned subsidiary of CKS.
The acquisition was called off in November after CKS' stock lost 63% of its value in one day.
CKS said the drop was not a factor in the deal's demise; CKS CEO Mark Kvamme said the company "didn't see the synergies" it had originally expected upon closer examination.
WOULD FIT IN WITH STRATEGY
Y&R has been pushing for a larger role in integrated marketing, identifying clients for which it can coordinate global accounts using multiple Young & Rubicam units. A consultancy acquisition fits that strategy, said Alan Gottesman, managing director of West End Consulting.
The acquisition comes at a tricky time for Y&R. The company is expected to begin trading on the New York Stock Exchange during the second quarter and has filed a registration statement.
But until it begins trading after completing its initial public offering, it will not have stock -- a method preferred by holding companies to pay for deals. Analysts noted Y&R could get around that hurdle by paying for the deal with options in the upcoming stock.
Y&R filed additional details of its IPO with the Securities & Exchange Commission on April 8. According to the revised registration filing, Y&R will begin trading at $21 to $24 a share. Assuming a $22.50-per-share price, Y&R will make $373.5 million on the offering.
Some of that is tagged for paying back a $331 million term loan Y&R used for a 1996 recapitalization.
The filing also noted the company will post another loss in 1998 as a result of the charges related to the IPO. Net losses had dropped from $238 million in 1996 to $24 million in 1997 as it brought in new accounts and streamlined operations in anticipation of the IPO.
In the revised registration statement, Y&R said it will sell 16.6 million shares of stock, 9.9 million owned by employee shareholders and investment bank Hellman & Friedman Partners, which bought some 20% of the company in 1996. Another 6.7 million will be owned by the company.
At the $22.50 price, management and Hellman & Friedman will share a $223 million payday.
Contributing: Pat Sloan