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WPP pays $4.7B for Y&R
May 12, 2000: 3:38 p.m. ET

British No. 1 buys U.S. rival, creating world's biggest advertising firm
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NEW YORK (CNNfn) - British advertising company WPP Group agreed Friday to acquire U.S. rival Young & Rubicam for $4.7 billion in stock to create the world's biggest advertising company.

The acquisition lifts WPP, currently ranked world No. 3 in the advertising business, above Omnicom Group (OMC: Research, Estimates) and Interpublic Group of Cos. (IPG: Research, Estimates). Agreement on the takeover terms came two weeks after the British company walked out of the first round of talks because Young & Rubicam demanded to keep its autonomy within the enlarged firm - a condition the U.S. company is believed to have dropped.

The break in negotiations gave French rival Publicis (PPUB) the opportunity to hold acquisition talks of its own with Young & Rubicam, one of the oldest and most prestigious advertising firms on New York's Madison Avenue.

graphicThose discussions stalled because Young & Rubicam's (YNR: Research, Estimates) contract with automaker Ford (F: Research, Estimates), which contributes nearly 10 percent of Y&R's total revenue, clashed with the client lineup at Publicis, which features rival French automaker Renault.

WPP went back to the negotiation table last Friday, and slightly sweetened its stock offer from 0.83 WPP American depository receipts. It is now offering Young & Rubicam shareholders 0.835 of a new WPP ADR, or 4.175 new WPP ordinary shares, for each Young & Rubicam share, valuing the U.S. company at just over $53 a share. Y&R stock on Thursday afternoon fell 2-1/4 to 46-1/8.

Young & Rubicam shareholders will end up with one-third of the combined company. Tom Bell, now chief executive of Young & Rubicam, was to become the unit's chairman, while Y&R Finance Director Mike Dolan takes over as CEO.

But Bell told a press conference that he would leave the advertising group once its merger with WPP was completed, suggesting he would rather not work as the No. 2 man at the company, under WPP CEO Martin Sorrell.

"A company needs one clear designated leader and I can't think of anyone better to lead this combination than Martin Sorrell," Bell said on a conference call.

Deal seen spurring consolidation

The acquisition "may trigger further consolidation in our industry," WPP CEO Martin Sorrell told analysts on a conference call. Sorrell said the takeover was driven by "consolidation at the client level" and a need to become a key player in the Internet market, by strengthening its online advertising and Web development businesses.

Merrill Lynch analyst Lauren Fine echoed that sentiment, noting that consolidation could occur particularly for single-agency holding companies.

WPP said it expects to generate Internet-related revenue of about £625 million this year. Overall sales last year were £2.2 billion ($3.4 billion).

A combined WPP (WPP) and Young & Rubicam would generate nearly $6.7 billion in annual revenue. Advertising and media will account for 47 percent of the enlarged company's annual revenue, with 28 percent from specialist communications, 13 percent from information and consultancy, and 12 percent from public relations.

WPP shares closed in London on Friday at 802 pence, down 5 percent. Its ADRs fell about 7 percent, or 4-11/16, to $58-13/16 in New York this afternoon.

graphicThe client base of the combined WPP-Young and Rubicam will be anchored by global companies such as Ford Motor Corp. (F: Research, Estimates), AT&T Corp. (T: Research, Estimates) DuPont (DD: Research, Estimates), and American Express (AXP: Research, Estimates). WPP's previous work for American Express included a popular series of commercials featuring comedian Jerry Seinfeld.

Sorrell would not comment on whether combining the two advertising companies' client lists would lead to any conflicts. Among the enlarged group's clients are Anglo-Dutch consumer products maker Unilever (ULVR) and U.S. rival Colgate-Palmolive (CL: Research, Estimates).

WPP and Y&R's combined client billing - the value of all its outstanding customer contracts - now tops $28.1 billion, with Interpublic billing some $25.7 billion and Omnicom in third place with $16.1 billion. The combination had pro forma 1999 earnings of $704 million before interest and tax, they said Friday.

WPP (WPPGY: Research, Estimates), which already owns the J. Walter Thompson and Ogilvy & Mather advertising firms, said the merger was expected to generate costs savings of $30 million a year, and would enhance earnings in the first full year. It said it aims to raise its profit margin by 0.5 percent a year up to 2002.

The companies expect to complete the acquisition within the next three-to-four months. WPP said it doesn't expect antitrust regulators to raise objections to the deal. Back to top


WPP nears $5.7B buyout of rival Y&R - May 08, 2000




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