WPP sits at the top

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Sir Martin Sorrell's long quest to capture Young & Rubicam ended late last week, when the legendary U.S. shop agreed to WPP's offer of $53 per share, or $4.7 billion, the largest acquisition in advertising history.

"Our proposed merger with WPP will put us at the top of the heap," said Y&R CEO Tom Bell at a shareholders meeting May 12. "We have taken our game to the highest level."

In finally bonding with WPP, Y&R becomes part of the world's leading advertising agency holding company with estimated worldwide revenue for 1999 of $5.2 billion, and blue chip clients including AT&T Corp.; Citibank; Colgate-Palmolive Co.; Ford Motor Co.; Kraft Foods; Philip Morris Cos.; Sears, Roebuck & Co.; Sony Electronics; and United Airlines.

But some analysts question why Mr. Bell agreed to sell, especially at such a low price. Salomon Smith Barney on its Web site characterized the deal as a "suboptimal structure from the perspective of Y&R shareholders."

The offer stood at 0.835 WPP American depository receipts for each Y&R share. WPP shares were up 9% on the New York Stock Exchange following the disclosure of revived talks May 5, which would have made the sale price $62.67 a share, or $5.4 billion overall, based on 72 million outstanding Y&R shares and 19 million outstanding Y&R options.


Y&R shareholders will vote through the mail, a process that will take at least three months, and from early reaction to the announced terms of the deal, it seems Y&R executives will need to quell some uneasiness. "If I was a current Y&R shareholder I would be disappointed," said Mitch Kurz, a financial consultant with Kurz & Friends, and a former Y&R executive. "I don't understand Y&R's motivation. [Sir Martin] bought Ogilvy for twice the price, delivering maximum shareholder value. [Y&R stock] was 25 points higher just a few months ago."

In a race to the final moment, WPP Chief Executive Sir Martin and Y&R executives met with Colgate executives May 10 to discuss potential conflicts with Unilever clients at WPP units J. Walter Thompson Co. and Ogilvy & Mather. Billings hanging in the balance include the global account of Colgate, which financial analysts estimate will grow to $700 million this year (see related story on Page 6). A Colgate spokeswoman would not confirm the meeting with agency executives or comment on the outcome.

On the auto front three executives close to Ford Motor Co., who asked not to be named, all said the top brass at the car marketer have considered a global agency realignment for at least six months. Under the plan, two of those executives said, JWT could get all Ford-branded vehicle work globally, meaning Y&R would lose the $230 million in European business it gained from O&M in 1998.


But Y&R would make up for the lost billings with the award of all vehicle brands under Ford's luxury Premier Automotive Group: Jaguar and Volvo, and also Land Rover, once that deal to acquire it from Germany's BMW Group is closed. Y&R would keep the Lincoln and Mercury brands.

The third executive said Volvo could make a very good case for keeping Messner Vetere Berger McNamee Schmetterer/Euro RSCG, New York, since the agency has done good work and helped increase the brand's car sales.

Officially Ford had no comment.

John Kiker, VP-worldwide communications at United Airlines, which has its international account at Y&R, said he does not foresee any conflicts involving the WPP marriage even though WPP shops work for several United competitors. In one such arrangement, O&M handles Northwest Airlines' overseas account.

There is some turbulence on Y&R's executive front, however. Mr. Bell, whose ambivalence about the deal was well known and led him to consider other options, including a possible deal with Publicis, will leave the agency after an interim period as chairman of Y&R Inc.

"Two cooks spoil the broth," Mr. Bell said after the company's May 12 shareholders meeting. "And I can't think of anyone better to lead this organization than Martin Sorrell." Mr. Bell said he would leave sometime after the acquisition is completed.

Mike Dolan, vice chairman and chief financial officer of Y&R, will remain as CEO of Y&R Inc.

Ed Vick will be chairman-CEO of Y&R Advertising, an apparent step down from his current position as chairman-chief creative officer of Y&R Inc.

According to Y&R insiders, two weeks before the merger was completed Mr. Vick announced his appointment to head the advertising agency. "I wanted to be chairman and oversee some of the creative product for a year and then phase out," said Mr. Vick. "I decided that I missed the business [at Y&R Advertising], I missed some of the people. Rather than just ride off in the sunset, I decided I want to re-engage."

"I think Ed coming back is very good news," said Sir Martin. "It sends a very strong signal."


Together with Sir Martin and Paul Richardson, WPP's group finance director, Messrs. Bell and Dolan will constitute a planning committee (formerly called the integration committee) that will oversee all decisions made regarding the operations of Y&R within the holding company.

Sir Martin believes this consolidation will provoke scrambling among other advertising holding companies to grow even bigger, equating the growth of agencies to the growth of their clients, and the "globalization of industries in which we operate and work for our clients."

He also hinted that WPP may look to combine its media company MindShare with Y&R's media unit, Media Edge.

Sir Martin, some believe, was driven by ambition to this deal to create the world's largest ad agency holding company, but beneath the conqueror's breastplate, another passion may stir the dark knight. "He doesn't want to own the largest agency in the world," said an executive at a WPP company. "He wants to be the richest man in advertising."

Last September, WPP shareholders approved an incentive scheme for Sir Martin that could net him about $50 million in WPP shares. The package, which is contingent upon the holding company ranking among the top eight agency holding companies in the world, could potentially net the chief executive - and a select group of WPP executives - $100 million in shares over five years if the stock performance improves and the agency is No. 1. It looks like he is making sure of that, by acquiring the position.

Contributing: Mercedes M. Cardona, Jean Halliday, David Goetzl

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