JWT Group Accepts British Company’s Offer After It’s Sweetened to $566 Million
JWT Group, parent of the nation’s fourth-largest and perhaps best-known advertising agency, agreed Friday to a sweetened $566-million takeover offer by a British marketing firm after an internally turbulent six months plus weeks of takeover efforts.
In what is believed to be the largest single acquisition in the advertising industry, London-based WPP Group PLC will buy its way into the advertising and public relations big leagues with JWT’s two largest subsidiaries: the Hill & Knowlton public relations firm and the J. Walter Thompson advertising agency, whose accounts include Ford cars and trucks, Goodyear tires and Rolex watches.
Analysts said WPP’s $55.50-a-share offer--$10 more than its original offer made 16 days ago--is a very generous one for JWT, which has posted losses during the past two quarters, and has been shaken by the resignation and firing of top executives earlier this year.
JWT closed Friday at $55.125 a share, up $2.25, in composite trading on the New York Stock Exchange.
“It is fair to say that the shareholders are going to get top dollar for their shares,” said analyst David S. Leibowitz of American Securities.
JWT is the largest acqusition so far for the British company and its chief executive Martin Sorrell, who has transformed WPP from a firm that made shopping carts (WPP stood for Wire & Plastic Products) into a marketing services firm.
The merger agreement, approved by JWT’s board of directors in a meeting that ended at 1 a.m. Friday, brings to an end what had been at times a bitter takeover battle between the two companies.
In making the initial takeover offer, WPP’s Sorrell said he would bring back former senior manager Jack E. Peters as president of JWT. Peters left the company in January after he and other top executives proposed taking JWT private.
JWT rejected Sorrell’s initial bid and was reported to have been looking for ways to thwart the takeover, including a management buyout.
Meanwhile, some of the advertising agency’s key clients began to voice concerns about a possible takeover. Eastman-Kodak, a JWT client for 56 years, had said a change in JWT management would be viewed as “negative and disruptive.”
On Friday, a company spokesman said JWT chairman and chief executive Don Johnston spent the morning calling up major clients to deal with their concerns.
In letters sent to J. Walter Thompson employees on Friday, Johnston stated that Sorrell, “has made a commitment to keep the company intact and to maintain the traditions, values and culture we have always stood for.” Sorrell, according to Johnston, also said Peters and former executive Joe O’Donnell would not be running the company.
Although it owned a highly regarded and creative advertising agency, analysts said, JWT had trouble making that creativity pay off. “The creativity was just fine,” said analyst James D. Dougherty at County Securities USA. But, “for years,” he said, “JWT’s profit margins were less than half of other firms in the advertising industry.”
Analysts and industry executives say Sorrell’s number one priority will be to boost JWP’s profit margins--no easy feat in an industry that is facing tough times. That would suggest, said Ed Meyer, head of Grey Advertising in New York, that Sorrell might concentrate on cost cutting. “You’re really talking about people, since people are 65% of the cost of an agency,” he said.
TOP FIVE ADVERTISING HOLDING COMPANIES (ranked by 1986 gross income)
Holding Company / 1986 Gross Income (in billions)
Saatchi & Saatchi PLC, London / $1.21
Interpublic Group of Cos., New York / 0.822
Omnicom Group, New York / 0.820
JWT Group, New York / 0.644 Ogilvy Group, New York / 0.549
Source: Advertising Age
