JWT Group Gets $432-Million Bid by British Firm : Embattled Parent of Giant Ad Agency, PR Company Sought by WPP Group
A fast-growing British marketing services firm on Wednesday offered $432 million in cash for JWT Group, an advertising giant recently shaken by a power struggle among its top executives.
WPP Group PLC said it would pay $45 a share for the embattled JWT Group, which owns the J. Walter Thompson advertising agency and the Hill & Knowlton public relations firm.
In New York, JWT Group said it was reviewing the unsolicited offer and other options. The company has previously vowed to remain independent.
JWT Group was rumored to be a takeover target since January, when Joseph O’Donnell, the head of its flagship J. Walter Thompson agency, presented an unsolicited buyout offer that would have unseated Don Johnston, JWT Group chairman and chief executive. Since then, about half a dozen key executives have been let go, some of whom were supporters of the buyout.
Expected to Resist
WPP Group said that one of those dismissed executives, former J. Walter Thompson President and Chief Operating Officer Jack E. Peters, will come back to JWT in a “senior management capacity” if WPP Group acquires the firm.
Investment analysts expected JWT Group to try to fight WPP Group’s bid. At the company’s annual meeting a month ago, Johnston adamantly declared that the firm was not for sale.
Analysts speculated that JWT Group might avoid a WPP Group takeover by launching a management buyout. But others doubted that JWT could raise the financing necessary to buy the company.
The price of JWT Group’s shares soared on Wednesday, and some analysts speculated that higher bids might be in the offing. In composite trading on the New York Stock Exchange, JWT Group’s stock rose by $9.75 a share, closing at $49.
Charles G. Crane, an analyst with Prudential-Bache Securities in New York, said he believed that the increase reflected the fact that WPP Group had enough financing in place to pay more than $50 a share. “I don’t see another ad agency coming through with a competing bid, and it wouldn’t make sense for a non-ad agency to come in and try to sort out the mess at JWT,” said Crane.
Asked in an interview whether WPP Group might increase its offer, Martin S. Sorrell, the firm’s chief executive, said: “In our letter to JWT Group, we indicated that all aspects of our offer were negotiable.”
Sorrell said that he has long admired JWT Group, which counts among its clients such industrial giants as Eastman Kodak, Ford, Kellogg and Kraft. He said WPP Group sought the much larger JWT Group to expand its presence in advertising, public relations and market research.
Suitor Sets Deadline
WPP Group gave JWT Group until 4 p.m. EST today to respond to its offer. A JWT Group spokesman said that Johnston, the firm’s chairman, was flying back to New York from London on Tuesday and hadn’t seen the offer. “I don’t know that we can meet their deadline,” the spokesman said.
Sorrell is the former finance director at the British firm Saatchi & Saatchi, the world’s largest advertising agency. In his eight years with Saatchi & Saatchi, he helped engineer the agency’s entry into the U.S. market and earned a reputation as a sharp numbers man.
“He is probably the ablest financial executive to grace Madison Avenue in years. He really knows how to make the numbers sing,” analyst Crane said.
He said Sorrell’s adherence to strict financial controls was one important reason for the success of Saatchi & Saatchi and, more recently, the growth of WPP Group, which Sorrell joined in 1985.
WPP’s offer for JWT Group comes as the agency’s profits are falling. In the first quarter, JWT Group lost $1.4 million on revenue of $158.3 million. For all of 1986, the company earned $5.9 million, compared to $19.4 million a year earlier, despite growth in sales.
Sorrell said he believed that WPP Group could bring financial expertise to JWT Group as well as “professional management that has gone from the company in the last six months,” a reference to Peters. Sorrell declined to say whether he has discussed jobs with other former J. Walter Thompson executives.
According to analysts, Sorrell doesn’t interfere with the creative side of the business in the firms he acquires. “But you have to toe his financial line,” Crane said.
In its letter to JWT Group, WPP Group said: “We believe that a combination of the two companies will provide a greater value to your shareholders, as well as a more rewarding and stable environment to your clients and employees than can be provided by any competing offer.” The letter also said a company associated with WPP owns nearly 5% of JWT’s stock.
Fast-Growing Operation
As the result of a two-year acquisition spree, WPP Group has become the second-largest non-media marketing services firm in Britain.
Among its holdings are Sidjakov, Berman, Gomez & Partners, a San Francisco package design firm. Its U.S. operations account for 40% of its expected $130-million revenue this year.
WPP Group said it plans to finance the deal with $270 million in equity that has already been raised in Britain and $260 million in long-term debt that Citibank and Samuel Mantagu & Co. have commited to underwrite. Additionally, WPP Group has arranged for a bank credit line for JWT Group to be put in place.
