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Deal Creates Largest Ad Company

In the advertising industry's biggest buyout, WPP Group PLC is paying about $4.3 billion in stock for Young & Rubicam Inc., which created the Jell-O jingle, invited soda drinkers to "Be a Pepper'' and made Snoopy an insurance salesman.

The deal announced Friday after a rocky four-month courtship will make London-based WPP Group, which also owns the venerable U.S. ad companies J. Walter Thompson and Ogilvy & Mather, the world's largest ad and marketing company.

Its chief executive, Martin Sorrell, said the deal may trigger more consolidation in the ad industry in an effort to assemble the resources companies are demanding to distinguish themselves and reach potential customers around the world.

“This creates a combination that will be hard to beat,'' said Tom Bell, the chief executive of Y&R. He had been asked to become chairman of WPP but intends to leave the combined company after a transition period so it will be clear that Sorrell is in charge.

The 77-year-old Y&R, which went public only two years ago, brings a prestigious roster of clients including AT&T, Cadbury-Schweppes and Colgate-Palmolive.

It also works for a number of important clients who also employ the Thompson and Ogilvy agencies, such as Ford Motor Co., Kraft Foods and Sears, Roebuck & Co.

Y&R created the ad campaign that tunefully reminded kids and shoppers how to spell Jell-O and another melodic pitch for Dr Pepper. It was behind the "I'm stuck on Band Aids'' campaign for Johnson & Johnson years ago and more recently created the hip animated Colonel for KFC. Its ads for MetLife featured the Peanuts characters Snoopy and Woodstock in a variety of roles.

Sorrell declined in a telephone news conference to disclose the reactions of the two ad companies' clients to the buyout.

Bell told shareholders at Y&R's annual meeting earlier that “we are quite comfortable with the responses we have received'' in discussions with its major clients.

WPP expects to cut costs by about $30 million in the first full year after the deal closes. Sorrell declined to say how many jobs may be affected.

The deal offers Young & Rubicam shareholders a choice of either 0.835 of a WPP American Depositary Receipt or 4.175 new WPP shares for each Y&R share.

On Friday, WPP ADR's fell 5.5 percent, or $3.50 a share, to $60 while Y&R shares fell 1.3 percent, or 62{ cents, to $47.75 on the New York Stock Exchange.

Jim Dougherty, who follows ad stocks for Prudential Securities, said he couldn't explain why the investors were pushing the stock prices lower.

It's a good deal for both companies. It achieves both their objectives and helps them leapfrog into the upper echelons of the advertising and marketing services business.''

The takeover still requires shareholder and regulatory approval. WPP expects to complete the buyout by this fall.

Sorrell and Bell said they expected investors would become more impressed with the potential of the company being created as they explain it in detail in the next few weeks.

In addition to their high-profile ad agencies, the companies also have huge media-buying services that could collectively carry even more clout with broadcast and print outlets for favorable rates and placements.

They each own large PR agencies _ WPP has Hill & Knowlton while Y&R has Burson-Marsteller. They also have direct marketing agencies, market researchers, healthcare advertising specialists and Internet agencies.

The combined company would handle billings estimated by the trade publication Advertising Age at nearly $64 billion. That would push WPP, which had been the world's third-biggest ad organization in 1999, ahead of Interpublic Group of Companies at $47.2 billion and Omnicom at $45.55 billion. Billings measure the amount of ad spending that an ad company handles for its clients.

WPP and Y&R began talks in January, but the discussions broke down in mid-March amid disagreement over Y&R's demands for autonomy and WPP's proposals for tough restrictions on executives who leave Y&R after the deal.

The talks resumed in mid-April, broke down again on April 28 and resumed May 4.

The French ad company Publicis SA talked with Y&R about a combination but disclosed on Monday that it had decided against making an offer. Bell said Publicis was interested only if the deal with WPP collapsed.

The biggest takeover in the ad industry to date was the French Havas Advertising SA's $2.1 billion deal announced in February for Snyder Communications Inc.


SKIP WOLLENBERG, AP Business Writer, May 12, 2000, (AP) via NewsEdge Corporation

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