Talks between WPP and Y&R are said to have stalled over a variety of issues, including price, severance packages, Y&R's integrated structure and autonomy. But one executive said the "channels of communication" between the two companies remain open, a sign they could return to the negotiating table.
Even if they are unable to reach agreement, there is growing speculation WPP Chief Executive Sir Martin Sorrell will mount a hostile takeover bid. Some believe he wants to avoid that for fear such a move could depress WPP's share price. But WPP is no stranger to hostile takeovers; it acquired both of its global agency networks, Ogilvy & Mather Worldwide and J. Walter Thompson Co., that way.
Said one Y&R executive, "It can only be hostile."
VOLUME TRADED STAYS STABLE
Y&R stock closed April 20 at $48, a solid gain for the week. But it remains significantly below its 52-week high of $72. Also the volume of activity did not increase appreciably, a sign professional investors don't believe a deal is close.
"Although Y&R had a really good week in the market," one consultant said, "the volume made it look like retail trading, not institutional trading. So I don't think there are any hedge funds participating, and they would normally get wind of a takeover."
Y&R's drop from its December high has prompted speculation impatient shareholders would welcome a WPP acquisition, which could value Y&R at around $65 a share.
Many Y&R insiders are said to favor a deal since the two companies are a good strategic fit and because a merger would give Y&R access to WPP's resources in such areas as research and media.
Others, however, believe Y&R CEO Tom Bell has tried to block a deal. Y&R's board recently voted for lucrative payoffs to top executives in the event of a takeover. That provision is said to have become a sticking point for WPP.
FORCING A DEAL
Some industry observers speculate WPP's current strategy may be to turn employee and shareholder tide against Mr. Bell to force a deal. Reports of the $65 a share offer and Y&R's golden parachutes have cast Mr. Bell and his management team in a poor light. They also effectively placed a for-sale sign on Y&R, tipping other would-be suitors. The fact that none has surfaced gives WPP more leverage.
In the end, the deal will come down to two basic motivators, several observers said: ego and money. If WPP acquires Y&R, it becomes the No. 1 agency holding company worldwide with $6.69 billion in gross income, far surpassing Omnicom Group ($5.7 billion) and Interpublic Group of Cos. ($5.1 billion).