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Y&R Wpp: Is This Deal Really Dead?


International Business: Advertising

Y&R-WPP: Is This Deal Really Dead?

Merger talks are off again, but stay tuned

Are Young & Rubicam and Britain's WPP Group better at soap operas than advertising? You have to wonder after merger talks between the two ad giants fell out of bed on Apr. 28 for the second time in four months. Insiders say the animosity, intrigue, and accusations of dirty dealing on both sides have true prime-time potential. And on May 1, the world turned again when Y&R announced it was in preliminary merger talks with French advertising group Publicis. That leaves Sir Martin Sorrell, WPP's 55-year-old chairman, in the cold--at least until the next episode.

That may not be far off. Sorrell, after all, earned a reputation as a hard-nosed dealmaker in the late 1980s, when he orchestrated back-to-back hostile takeovers of Ogilvy & Mather Worldwide Inc. and J. Walter Thompson. While Sorrell downplays the prospect of a similarly unwelcome bid for Y&R, it's clear he covets the company.

It's also clear that the London adman has a coherent world view. Sorrell believes the global consolidation of the agency business--which he kicked off in the 1980s--is still gathering steam. When it's over, he thinks, the ad industry will be just as concentrated as cars or computer hardware. The victors, the WPP chief says, will be global companies rooted in the world's strongest commercial market. U.S. companies account for half of the trillion dollars spent globally on marketing, and American practices in the advertising discipline will eventually become the global standard.

So WPP, strong as it is in the U.S., wants to be stronger. A merger with Young & Rubicam would create the world's largest ad group, with estimated sales of $17 billion, billings of more than $50 billion, and a blue-chip client roster--Ford, Sears, Kraft, Mattell--on two continents. "There is inexorable strategic logic behind putting these two companies together," Sorrell says.

Even now, Y&R executives concede a deal with WPP makes for an easier fit than one with Publicis, which seems uncomfortable as a white knight. Its clients include BMW and General Motors Corp.'s Saturn, which puts Publicis in competition with Y&R's biggest account, Ford Motor Co. Then there's Publicis' earlier foray into the U.S., a venture with Foote, Cone & Belding: It was a disaster.

Why doesn't Y&R cave in? Sorrell's style--"He's very interfering," says a rival ad chief--may have much to do with it. Y&R execs demanded golden parachutes and other protective arrangements--and claim Sorrell called off the $5.5 billion deal over an estimated aftertax cost of $60 million in employment agreements. But Sorrell says otherwise. One of his main objections, he says, was Y&R's demand to operate independently for a year after the merger. And some think Y&R could do with a boost of new talent. "Y&R is known as one of the stodgier names," says a creative chief at a rival shop. "They have some big accounts, but they're not very innovative."

A Publicis bid may benefit Sorrell more than anyone. He has agreed not to make any public offers for Y&R until November--or until a new bidder for Y&R emerges. And if Publicis were to bid, Y&R shareholders might be receptive to Sorrell. The day after Y&R announced talks with Publicis, Y&R's shares fell 10% in New York, to $50. If that's any guide, shareholders and clients are likely to push for a happy ending to Y&R's drama with WPP. And it's a safe bet Sir Martin has a fine idea for a final scene.By Kerry Capell in London, with Carol Matlack in Paris and Diane Brady in New YorkReturn to top

TABLE

Hunter and Hunted

BILLINGS REVENUES PROFITS

(billions) (billions) (billions) KEY ACCOUNTS

WPP $37.1 $15.1 $28 Ford, Unilever,

GROUP IBM, Miller beer,

American Express

YOUNG & $16.7 $1.7 $.17 Ford, AT&T, Kraft,

RUBICAM Mattell, Sony

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