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Y&R, Publicis in talks
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May 1, 2000: 12:50 p.m. ET
Advertising giants discuss deal after merger agreement with WPP falls through
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NEW YORK (CNNfn) - French advertising agency Publicis is talking with rival Young & Rubicam about a possible purchase, sources close to the discussions told CNNfn Monday.
News of a pending agreement followed reports that merger talks between New York-based Young & Rubicam (YNR: Research, Estimates) and Britain's WPP collapsed Friday, causing Y&R's shares to dive 5-7/8, or 11 percent, to 49-13/16 in late morning trading.
WPP (WPPGY: Research, Estimates) issued a brief statement Monday stating that talks with Y&R had been terminated. Earlier media reports said the two companies were close to a $5.5 billion deal, but could not agree on how much autonomy Y&R would have as part of WPP.
However, sources close to Publicis, the world's 10th largest agency, told CNNfn Monday that it had entered talks with Y&R about a possible purchase. Analysts said Y&R could use the talks as leverage to force a deal with WPP.
Y&R shareholders would prefer a merger with WPP because of Publicis' lack of liquidity, according to Chris Hansen, a Bank of America analyst. Publicis has no U.S.-based equity, while WPP trades on the Nasdaq Stock Exchange.
"Appetite among shareholders to hold Publicis shares is probably not as strong as people's appetite to hold WPP shares here in United States," Hansen said.
If Y&R and Publicis do sign an agreement, Hansen said WPP could make a hostile bid, but added that would be risky since advertising is about relationships with people.
Media reports over the weekend said Y&R is seeking a price tag in the high $60s per share. Based on 86.4 million diluted shares outstanding, that would value the company at up to $6 billion.
The deal would leave Y&R with 40 percent control of the combined advertising and marketing services companies. Y&R and Publicis executives began negotiations over the weekend, with telephone discussions continuing Sunday, according to the sources.
Publicis has been expanding in the United States, acquiring two companies already this year. 
-- from staff and wire reports
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