Ogilvy, WPP Begin Talks About Possible Merger
After shunning its eager British suitor for more than a week, the Ogilvy Group confirmed Friday that it had finally begun talks with WPP Group. The breakthrough came after the marketing giant said it was prepared to increase its $800-million bid for the parent of advertising agency Ogilvy & Mather.
Ogilvy executives--who have steadfastly insisted that they want the agency to remain independent--still say the talks may not produce an agreement. But industry analysts now speculate that Ogilvy’s management may reluctantly approve an offer of $860 million to $900 million for the agency--perhaps as early as Monday.
The news sent Ogilvy stock up Friday once again, as Ogilvy shares jumped $1.25 per share to $53.125 in over-the-counter trading.
“It looks better than ever that Ogilvy will be sold for about $860 million,” said Fred Danzig, editor of the trade magazine Advertising Age. “Assuming the deal is done and WPP takes over, there will be some problems but the dust will eventually settle.”
From that dust would rise one of the largest advertising holding companies in the world, with worldwide billings of more than $13 billion. That would rival Saatchi & Saatchi, which now ranks as the world’s largest advertising holding company.
Wall Street observers weren’t surprised by Friday’s news.
“My general opinion is Ogilvy stock is worth about $55 per share,” said Susan Decker, analyst with the New York investment firm Donaldson, Lufkin & Jenrette. “That’s about what WPP will pay for it.”
One New York analyst, who asked not to be identified, said that the issue has been forced by Ogilvy’s annual shareholders meeting, which is scheduled for Tuesday in New York. “Ogilvy kept delaying its response,” said the analyst, “and a majority of its shareholders would probably like to take the cash and run.”
But even on Friday, WPP did not launch a tender offer for Ogilvy, but instead indicated that it was willing to pay more than the $50 per share it offered earlier in the week. Unlike when it acquired the ad firm J. Walter Thompson in a hostile takeover two years ago, WPP does not want to alienate Ogilvy shareholders or clients.
Some clients, however, are already alienated.
Last week, an Advertising Age survey estimated that clients likely to walk away because of conflicts with the merger could cost WPP nearly $500 million in current Ogilvy business.
Among those clients is Mattel Inc., the Hawthorne-based company that accounts for nearly half of the total annual billings at the West Coast office of Ogilvy & Mather.
‘Reconsider Relationship’
Executives in Ogilvy’s Los Angeles office have been asked not to discuss the proposed merger. An Ogilvy spokeswoman in New York declined to comment on matters involving Mattel.
“That’s a question for Mattel, not for us,” said Joele Frank, a spokeswoman with Ogilvy’s public relations firm, Adams & Associates.
If WPP does acquire Ogilvy, “we would have to reconsider our relationship with Ogilvy,” said Glenn Bozarth, director of public relations at Mattel.
But a WPP spokesman said most Ogilvy clients are not unhappy with the merger. “Some clients who expressed outrage in public are not nearly so outraged in private,” said James. N. Fingeroth, a spokesman with WPP’s New York public relations firm, Kekst & Co.
Meanwhile, analysts are already speculating about what would happen to key Ogilvy executives if WPP does buy the company. Several analysts say Ogilvy’s chairman, Kenneth Roman, would likely resign and possibly be replaced by Graham Phillips, who now oversees Ogilvy’s U.S. operations. But others speculate that Roman is so concerned about Ogilvy retaining its image that he would likely remain with the firm--at least for a while.
But analysts also say that, as he did at J. Walter Thompson, Martin Sorrell, chairman of WPP, will probably begin immediately to cut costs at Ogilvy. That would likely result in layoffs as well as the sale of some Ogilvy units, which could include Ogilvy’s costly research division.
