Adworld Has New King in Sir Martin Sorrell

WPP Passes Previous Leader Omnicom, but the Top Spot Comes at a Cost

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NEW YORK ( -- There's officially a new world order in Adland. WPP, the British ad giant led by Martin Sorrell, last week moved ahead of U.S.-based Omnicom Group as the world's largest owner of agencies based on reported revenue. But exactly what the total cost will be for Mr. Sorrell, who has racked up the largest debt load in his sector in his quest to become the biggest player, remains unclear.

Sizing up debt

Sizing up debt: An assessment of the world's largest holding companies' financial health
The parent of global ad networks such as Ogilvy & Mather and JWT and other marketing, media and PR companies such as Wunderman, MindShare and Burson-Marsteller posted $13.6 billion in revenue for 2008. It managed to squeeze past Omnicom -- which reported 2008 revenue of $13.4 billion -- thanks to the inclusion of two months of revenue from Taylor Nelson Sofres, the market-research firm WPP snapped up in a $1.9 billion deal last October. Were it to include a full year of TNS revenue, WPP said, it would have reached $15.4 billion in revenue last year.

In recent years, Mr. Sorrell has used the acquisitions of companies such as TNS, Grey Global Group and 24/7 Real Media to catch up with Omnicom -- deals that have made WPP the most debt-laden of the agency holding companies. WPP ended 2008 with a total debt of $8.2 billion, including debt WPP took on in its TNS acquisition. WPP's total debt increased last year by £2.3 billion or $3.4 billion -- more than the total debt load on the books of rival Omnicom ($3.1 billion). Aggravating that figure is some $800 million of debt that WPP acquired with the purchase of TNS.

In November, Standard & Poor's moved WPP's credit rating down a notch to BBB, a low investment grade. But analysts are still generally friendly to the company, with 15 of 26 rating it a "buy." Amid the worsening economy, WPP instituted a stringent global hiring freeze last fall, though Mr. Sorrell has since said the holding company would consider adding head count in some regions and disciplines that are seeing an uptick. Still, insiders at certain WPP-owned shops have privately speculated that corporate concerns about debt are preventing agencies from investing in talent even when new business comes in.

Sober Sorrell
Needless to say, Mr. Sorrell didn't precisely take a victory lap in a conference call with investors last week. There is, after all, that recession thing to worry about. He said, "I'd just like to say that in the 25, 30 years that I've been in the business, I have never seen anything quite like this."

Despite the tumult, he remained upbeat: "Although the economic gloom has heightened recently, with further earnings disappointments, surprise dividend cuts, continued financial restructurings and rights issues, we still believe there will be a recovery of sorts in 2010."

Mr. Sorrell's optimism in the face of economic adversity is no surprise. After all, he and WPP have risen from the ashes before. On the heels of a recession in the early '90s, WPP's stock plummeted, investors fled and some suggested Mr. Sorrell would be pushed out of the company. Members of the investment community at the time deemed the company on the verge of a collapse.

If the WPP chief's predictions are correct, the current holding-company landscape is only temporary, and will see a shake-up again with the consolidation of WPP's rivals. "It is almost an inevitability that Havas and Aegis will get together, and indeed that [Interpublic] will get together with somebody at some point in time," Mr. Sorrell said on the conference call.

Interpublic Group of Cos., the original agency holding company, ranked No. 1 among the Big Four ad giants as recently as 2000. It fell to the No. 2 slot, behind Omnicom Group, in 2001, and then third, behind WPP, in 2003. Five years later, Interpublic remains in third place. For 2008, it posted an impressive 6.2% jump in revenue to $7 billion, but that left it only a breath ahead of French conglomerate Publicis Groupe, which reported 2008 revenue of $6.9 billion.

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Contributing: Bradley Johnson

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