British WPP Makes Bid for Ad Firm Ogilvy : Cash Offer to Create Huge Holding Company Gets Cool Reception
A long-rumored takeover bid for Ogilvy Group Inc. materialized Sunday with the announcement that Britain’s WPP Group PLC has made a cash offer of about $720 million for the New York advertising company.
Ogilvy greeted the bid frostily, declaring that the proposal “suffers from serious flaws in business logic.”
In a prepared statement, Ogilvy Chairman Kenneth Roman attacked the price, style and substance of the WPP offer by saying: “The boot strap character of WPP’s approach is further underlined by the lack of committed financing even for what is obviously intended to be a starting price.”
WPP may not be easily deterred, however, if history is any lesson. Two years ago, the British company pulled off the first hostile takeover in the advertising business with its $566-million acquisition of J. Walter Thompson Co.--and has generally been accorded good marks for digesting the firm.
The WPP offer of $45 a share is a premium over Ogilvy’s recent trading price. On Friday, the stock closed at $32, down 50 cents, in over-the-counter trading. The bid offers a multiple of about 20 times’ earnings for Ogilvy, which reported $32.95 million in net income last year.
If the two firms did merge, their combined billings would approximate those of Saatchi & Saatchi PLC, currently the world’s largest advertising holding company with billings of about $13.5 billion.
But Ogilvy spokesman Jonathan Rinehart responded with a “So what?” In a brief telephone interview from New York, Rinehart asked, “Does that make for better advertising? Better public relations? . . . We don’t think it does.”
Rinehart conceded that WPP has made “praiseworthy improvements” at J. Walter Thompson, but he insisted that similar corrections “aren’t there to make at Ogilvy.”
Ogilvy does not have the “low--margin problems that can be cut by some cost-containment artist who can wring a lot of profit out,” declared Rinehart, whose own public relations firm merged with Ogilvy in 1986.
Although Ogilvy’s 1988 operating margin was 7.9%--compared to WPP’s 9.5%--Rinehart explained that a research subsidiary and new promotions unit in the United States depressed the solid 9.7% margin enjoyed by the firm’s advertising business.
Rinehart said Ogilvy received the takeover offer Friday in the form of a letter from WPP Chairman Martin Sorrell, which read “sort of like a sales pitch.”
Another executive who saw Sorrell’s six-page letter said it went into painstaking detail about the advantages of a merger yet also tried to assure Ogilvy that it would have operating autonomy. Sorrell noted that Ogilvy has the stronger presence on the European continent, for example, while J. Walter Thompson is strong in Latin America, the executive said. In research, Ogilvy has a subsidiary that caters to individual clients’ needs while a WPP unit produces broader reports, the executive said--speaking on the condition that he not be identified.
Founder Is Consultant
Ogilvy’s clients include Unilever, American Express, Polaroid and Ford. A source close to WPP said the companies have few conflicting accounts, noting that WPP also represents Unilever and Ford.
Ogilvy was founded 41 years ago by David Ogilvy, who, at 77, continues to serve the company as a consultant and board member but owns less than 1% of the company’s 16 million shares on a fully diluted basis. Employees and directors hold a total of about 14% of Ogilvy’s stock, which has traded publicly since 1966.
In his prepared statement, Ogilvy’s chairman said the board would meet “in due course” to consider the unsolicited bid, but as of Sunday, no date had been set, Rinehart said.
For the year ended Dec. 31, 1988, WPP reported net income of $38.1 million on revenues of $974.7 million. In addition to J. Walter Thompson, the company’s holdings range from the smaller ad agency of Lord, Geller, Federico, Einstein Inc. to the giant public relations firm of Hill and Knowlton.
WPP’s Sorrell is a former finance director of Saatchi & Saatchi, who in eight years helped mastermind that agency’s entry into the U.S. market. In the past, analysts have characterized Sorrell as a numbers-oriented executive who is disinclined to meddle with creative decisions made at the agency level.
