JWT Rejects WPP’s Bid but Agrees to Enter Merger Talks

The parent of the troubled J. Walter Thompson advertising agency Wednesday rejected a $45-a-share bid from a British marketing services firm, but agreed to enter discussions with WPP Group, beginning today.

Until now, JWT Group has resisted WPP’s overtures. Industry analysts expected today’s talks to lead to a merger between London-based WPP and JWT, also the parent of the Hill & Knowlton public relations firm.

“JWT will go to WPP,” predicted James D. Dougherty, an advertising industry analyst with County Securities USA in New York. “Emotionally, they don’t want to sell out. But they really can’t avoid it.”

Preliminary Discussions

However, a JWT spokesman in New York characterized the discussions with WPP as “preliminary.” He said, “These aren’t merger talks. We just want to find out what’s on their minds.”

On another front, JWT filed a lawsuit against WPP in New York on Wednesday, saying the British firm was getting inside information from a former JWT official. The lawsuit seeks to halt the firm’s hostile $45-a-share tender offer, launched June 12.

JWT said its directors rejected the $45 bid after a lengthy meeting Tuesday. The directors called the offer inadequate, noting that the company’s shares have traded in the $50-range for the last several days.

JWT’s shares rose on Wednesday, indicating that speculators thought WPP might raise its bid. JWT shares closed at $52.75, up 25 cents in composite trading on the New York Stock Exchange.

JWT said its directors on Tuesday agreed to consider a sweetened $50.50 a share offer from WPP and explore “other expressions of interest.” Industry sources said that MCA, the Los Angeles entertainment firm, had expressed interest in JWT.

Reached by telephone in New York, Sidney J. Sheinberg, MCA president and chief operating officer, declined comment on a report that MCA and Salomon Bros., the New York investment firm, planned to meet this week with JWT. “I can’t comment on what is or might be going on, if anything,” he said.

JWT, which lost money in the first quarter, has been viewed as a takeover target since January, when several of its top executives were let go in a management shake-up. One of those executives, Jack E. Peters, has agreed to return to JWT as president and chief operating officer if WPP’s bid for the company succeeds.

In a filing with the Securities and Exchange Commission on Wednesday, JWT said it was exploring a number of options, including selling some of JWT’s businesses and a leveraged buyout. In a leveraged buyout, the cash flow or assets of a firm is pledged as collateral to obtain financing for the acquisition. Most analysts, however, consider a leveraged buyout unlikely.

JWT also told the SEC that it awarded “golden parachutes” to 26 executive officers and key employees, including Don Johnston, JWT chairman and chief executive.

JWT directors awarded the golden parachutes on June 8, two days before WPP made a friendly $45-a-share bid for JWT.

A golden parachute is a hefty severance package awarded to key executives which can be collected if the executives lose their jobs after a company changes hands. Johnston’s golden parachute would give him a $1.41-million severance payment, according to the SEC filing.

The lawsuit filed by JWT in Superior Court in New York on Wednesday alleges that Peters, the former JWT executive, passed inside information to WPP. The suit asks that the British firm be stopped from an alleged “ongoing misuse and misappropriation of highly confidential and proprietary information concerning JWT and its clients.”

The suit asks that firm stop acquiring JWT stock, return any confidential information and disgorge all profits and gains.

Times Staff Writer Kathryn Harris contributed to this story.