WPP Group Bid for Ogilvy Expands British Push Into World’s Major Ad Market
Shares of Ogilvy Group jumped more than $17 Monday following an unsolicited $725-million bid for the New York advertising concern by the British firm WPP Group.
If an acquisition eventually does take place--as many analysts predict it will--Ogilvy would join the growing list of major U.S. advertising agencies that have fallen into British hands. This despite a letter sent Sunday by Kenneth Roman, chairman and chief executive of Ogilvy, to WPP chief Martin S. Sorrell, which stated: “Ogilvy and WPP have fundamentally different strategies and goals.”
Expectations that the takeover battle would continue propelled Ogilvy stock to close at $49.125 a share, up $17.125.
Just two years ago, WPP purchased the giant U.S. advertising agency, J. Walter Thompson. And over the past several years, another British ad giant, Saatchi & Saatchi Co. PLC, has spent hundreds of millions of dollars to purchase a handful of major U.S advertising agencies, now Saatchi & Saatchi Advertising, Backer Spielvogel Bates, AC&R; and Campbell-Mithun-Esty.
A WPP takeover of Ogilvy, parent of the agency Ogilvy & Mather, would create the world’s second largest advertising holding company after Saatchi & Saatchi. Clearly, much of the growth of Saatchi and WPP has come from swooping up major U.S. advertising agencies. “It’s inevitable,” said Carl Spielvogel, chairman of the New York ad firm Backer Spielvogel Bates Worldwide, which was purchased by Saatchi in 1986. “The U.S. is still the largest ad market in the world. They want to be a part of it.”
But the British companies are buying American advertising agencies not so much for the agencies themselves, but to get their hands on the clients whose advertising billings can be in the multimillions. Some critics say, however, these huge British-owned agencies don’t always make better advertising.
“They’re in the business of business,” said Robert H. Schmidt, chairman of the New York ad firm, Levine, Huntley, Schmidt & Beaver, which creates ads for Subaru. “They’re not in the ad business.”
Some clients share those feelings. And because of that--or other conflicts--some major clients have left shortly after their U.S. ad agencies were purchased by big British holding companies.
Some Clients Concerned
Already, at least two of Ogilvy’s largest clients are raising concerns about the prospect of their ad agency being owned by a foreigner. Among those clients calling to express concerns to Ogilvy & Mather Chairman William E. Phillips on Monday were American Express and Ford Motor Co. “They don’t like to have their business taken for granted,” said Jonathan Rinehart, an Ogilvy spokesman.
It was Ogilvy that created the highly regarded “members” print advertising campaign featuring first-rate photographs of celebrities such as Ray Charles and Tip O’Neil. But American Express officials were clearly not pleased Monday with the current situation at Ogilvy. “Anything,” said vice president of public affairs Nancy Muller, “that might affect the level of service or the commitment we receive or the creative output of the agency would be of great concern to us.”
Said one advertsing executive, “Imagine American Express having its image created by a British-owned company.”
Indeed, clients have walked out on WPP in the past. Two years ago, shortly after WPP acquired J. Walter Thompson in a hostile takeover, giant Burger King took its $200 million ad business elsewhere. Other clients bailed out, too, including Goodyear Tire & Rubber Co. and the Slice soft drink business. In total, the WPP’s Thompson lost nearly $450 million in business after the WPP purchase.
None of this, however, is stopping WPP’s Sorrell from chasing after Ogilvy. And many analysts say, with good reason.
“Advertising is a business that we might have invented,” said Alan J. Gottesman, analyst at New York investment firm, Paine Webber Inc., “but maybe we did too good a job in training everyone else how to do it.”
At the same time, however, Gottesman warned, WPP could be wading into waters over its head. “Can a company get too big for its own good? Yes,” said Gottesman. He noted that in late March, giant Saatchi & Saatchi surprised some investors at its annual meeting when it announced that it expected 1989 pretax profits to be lower than those in 1988. “Does WPP lend itself to getting into that position?” Gottesman posed. “Yes,” he answered his own question.
Top advertising executives generally say that the key to success in British acquisitions of U.S. agencies is giving a great deal of autonomy to the acquired agency. Some critics say WPP’s Sorrell certainly didn’t do that last time around.
“There is no place for autonomy in Martin’s set-up,” said Richard Lord, chairman of the New York ad firm, Lord Einstein O’Neill & Partners. Lord led a walkout of top executives from the ad firm Lord, Geller, Federico, Einstein shortly after WPP took over its parent company, J. Walter Thompson.
“The signs were not good,” said Lord. “We used to have lists when we met with Martin. The first item on the list was always the issue of autonomy. We never got past it.”
But two top U.S. ad executives, whose agencies are owned by Saatchi & Saatchi, insist they have plenty of autonomy--and the mergers have been good for their companies
“Three years ago, we were a U.S. company that quickly needed access to overseas markets,” said Spielvogel. After all, Spielvogel’s client Philip Morris has recently purchased General Foods, and Spielvogel knew his agency would suddenly be doing lots of international work. For that reason, the timing of the agency’s purchase by Saatchi was good, he said. This, despite the fact that his company lost some big clients that had conflicts with Saatchi.
About the only thing Saatchi now asks from the agency is copies of its monthly financial statements, said Spielvogel. And nearly four years since it purchased Backer Spielvogel Bates, the chief executive of Saatchi has only visited the agency once--for about 20 minutes, said Spielvogel.
Similarly, Saatchi has made few demands on executives at the New York ad firm AC&R;, which it also owns. “I have no British creative directors or account executives, and no one has suggested that I hire any,” said Patrick King, president of AC&R;, which creates ads for Burlington Industries and Kinney Corp. “About the only time I hear from them is at Christmas, when they send me a nice greeting. “
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