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Y&R agrees to WPP merger
May 8, 2000: 12:42 a.m. ET

Advertising giants iron out management issues, pave way for $5.7B takeover
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NEW YORK (CNNfn) - U.S.-based advertising firm Young & Rubicam agreed in principle late Monday to a $5.7 billion takeover by Britain's WPP Group, a move that would create the world's leading advertising and public relations company, according to sources and published reports.

The agreement, which still requires board approval from both companies, could be announced formally as early as Tuesday.

A source with knowledge of the talks told Monday that the pending agreement would give WPP shareholders about two-thirds of the combined company's equity and leave Y&R investors with the rest. WPP (WPPGY: Research, Estimates) is offering 0.83 of its American depositary receipts (ADRs) for each Y&R share, the source said, valuing a deal at $62.67 a share for Y&R shareholders.

Executives from both companies signed off on the agreement in principal late Monday night, according to Tuesday's New York Times.

The deal comes less than two weeks after the same companies called off merger talks, prompting rival Publicis to initiate acquisition talks of its own with Young & Rubicam, one of the oldest and most prestigious advertising firms on Madison Avenue.

But prospects of an agreement brightened significantly during weekend talks, which came after the two sides returned to the bargaining table Friday, the source said. The source added that Y&R had shelved its insistence on some autonomy within an enlarged firm -- a demand that had prompted WPP to halt an earlier round of acquisition talks on May 1.

A Young and Rubicam spokesman declined to comment on the discussions.

graphicWord that the deal was nearing completion sent Y&R (YNR: Research, Estimates) tumbling 4-5/16 to close at 49-13/16 on the New York Stock Exchange. WPP (WPP) shares, meanwhile, fell 6.6 percent to 911 pence on the London Stock Exchange, while its ADRs fell 8-5/8 to 66-7/8 on the New York Stock Exchange.

Although the deal still requires board approvals, a source said, analysts said WPP was an ideal suitor for Young & Rubicam.

"It's a perfectly natural deal for these two companies," said James Dougherty, an analyst with Prudential Securities. "WPP wants to be the biggest marketing and advertising agency in the world, so from their perspective, it's a natural deal by a lot."

Little client overlap seen

One large advantage to the deal is WPP and Y&R have very little overlap on their client bases, Dougherty said. The one notable exception is Ford Motor Co. (F: Research, Estimates), which contributes nearly 10 percent of Young & Rubicam's annual revenue. However, since the companies handle Ford advertising in different markets, the relationships are not viewed as an impediment.

However, Ford's contract stood as a potential stumbling block to a merger between Y&R and Publicis, which holds the contract for a handful of Ford competitors, including French automaker Renault. graphic

Another factor aiding negotiations this time around was the apparent resolution of the so-called "autonomy clause" sought by Y&R during the initial round of talks. That clause would have allowed Y&R Chief Financial Officer Michael J. Dolan, who is set to become chief executive officer, to run Y&R for a year before handing over full control to WPP.

The source said the revival of talks was a sign that Y&R, one of Madison Avenue's most prestigious advertising firms, had given up its demand for that autonomy clause.

Another key issue in the talks was Y&R's plan for "golden-parachute" payments of as much as $60 million to its top executives in the event of a change of ownership, the Financial Times reported Monday.

The paper said Y&R executives were concerned WPP had gone too far in trying to tie them down to WPP, by inserting restrictive clauses that locked up their shareholdings and prevented them from working in competition with WPP if they left the enlarged company. Back to top


Y&R, Publicis in talks - May. 01, 2000

WPP restarts takeover talks with Y&R - May. 05, 2000



Young & Rubicam

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