WPP Group plc

views updated May 23 2018

WPP Group plc

27 Farm Street
London WIX 6RD
United Kingdom
(071) 408 2204
Fax: (071) 493 6819

Public Company
Incorporated: 1971 as Wire & Plastic Products Ltd.
Employees: 20,500
Billings: £5.07 billion (US$9.78 billion)
Sales: £1.2 billion (US$2.32 billion)
Stock Exchanges: London New York

WPP Group is the largest advertising agency group in the world, owning some of the most famous names in the business. These include the international media advertising giants JWT Group Inc. and Ogilvy & Mather, the public relations firm Hill and Knowlton Inc., three market research firms, and more than 30 companies in areas of non-media advertising and specialist communications, including such services as sales promotion, direct marketing, and graphic design. With more than 600 offices in 64 countries, WPP’s most important single territory is the United States, which accounts for 42 percent of its income. The United Kingdom accounts for 21 percent.

The company is largely the creation of English businessman Martin Sorrell. Armed with an economics degree from Cambridge and an M.B.A. from Harvard, he made his name as financial director of the advertising giant Saatchi & Saatchi plc, joining the firm in 1977 and playing a key role in its growth through acquisitions.

In 1986 Sorrell set out to build his own advertising empire. In need of a quoted company as a nucleus for acquisitions, he and a stockbroker friend had already bought a 27 percent stake in Wire and Plastic Products PLC in 1985. Having gone public in 1971, it was the holding company for a group of wire and plastic manufacturing businesses whose main products were shopping baskets and other domestic wire products. Sorrell became chief executive, changed the name of the company to WPP Group plc, with the support of the other directors, began adding marketing services to its activities.

In 1986 WPP made eleven acquisitions in this field, including design houses, incentive specialists, sales promotion consultants, and an audio-visual company. Sorrell’s experience with Saatchi & Saatchi plc had taught him to be adept at publicizing his firm in the business press. He also followed their acquisition technique, buying companies on a five-year “earn-out” basis. In this way, the cost of the buyout is spread over a period of years, and the price finally paid for the company depends on the management increasing its pretakeover profits.

The Saatchi brothers, with whom Sorrell was in close association, had taken a 10 percent stake in WPP. The price of WPP’s shares was boosted, increasing their attractiveness as takeover currency. Investment bankers subsequently began suggesting takeover candidates to Sorrell.

In the first half of 1987 WPP turned its attention to the United States and acquired several companies there. Still purchasing marketing services companies, Sorrell professed to be uninterested in buying conventional advertising agencies at that time. In June 1987, however, WPP launched a bid for the JWT Group Inc., a media advertising agency in financial trouble in the mid-1980s. Although it had posted a loss in the first quarter of 1987 and takeover rumors were rife, some analysts were surprised to find the JWT Group bought out by a British company that had never owned a mainstream advertising agency. The two companies agreed to terms within two weeks and the whole JWT Group, including the public relations giant Hill & Knowlton Inc. and several satellite companies, became part of WPP.

WPP had to borrow part of the $566 million cost of this purchase. JWT’s profit margin had dropped to 4 percent; however, with a few management changes and tough new profit targets, and with overstaffing and extravagant spending curbed, within three years both the JWT Group Inc. and Hill & Knowlton Inc. had raised their profit margins to 10 percent. In addition to increasing revenue, a large property windfall helped to cover the purchase cost. A sale and lease back arrangement was organized with JWT’s Tokyo office, which, when found to be worth over £100 million, was promptly sold along with other valuable properties.

Despite its borrowings, WPP’s profits rose steeply, from £1.7 million pre-tax in 1986 to £40.3 million in 1988. Sorrell’s reputation as a financial wizard grew as well, and he continued to make other acquisitions. His biggest coup came in 1989, when he added the Ogilvy Group to his empire. Like the JWT Group, it was at the time an international network of agencies and satellite companies about equal in size to the WPP Group. Interpublic Group Inc. also put in a bid for Ogilvy, but after a brief tussle it fell to WPP for $864 million. David Ogilvy, the Ogilvy Group’s founder, was persuaded to become chairman of WPP to help reassure Ogilvy clients.

WPP was now larger than Saatchi & Saatchi, the biggest advertising group of the time. However, the financing of its new purchases involved the company in preference shares and further large borrowings. Sorrell was convinced that he could pay these debts from increasing profits, but the task proved harder than it had with JWT because the Ogilvy group’s margins were already averaging 8 percent.

WPP eventually overtook the Saatchis in worldwide billings, however, and its pre-tax profits hit new peaks in 1989 (£75 million) and 1990 (£90 million). Its earnings per share also rose in both years. It was only in the recession of the last quarter of 1990 that the company was forced to issue a warning of lower profits in 1991. Investors suddenly scrambled to get out and within a week WPP’s shares lost two-thirds of their value.

In 1991 the company suspended all dividend payments and was forced to renegotiate its debts. Not helped by the effects of the Persian Gulf War and the continuing economic recession, the group’s billings fell for the first time, and by the end of the year its profits had fallen by 38 percent before taxes. In 1992 a further refinancing became necessary, and in return the banks took more of the equity, but had limited voting rights. While Martin Sorrell remains chief executive of the firm, a new chairman has been appointed. WPP believes that it can now trade its way back to health, but it may have to undergo more changes in the process.

Principal Subsidiaries

JWT Group Inc.; Ogilvy & Mather Worldwide; Scali, McCabe, Sloves Inc. (80%); Cole & Weber; Hill & Knowlton Inc.; Ogilvy Adams & Rinehart; MRB Group; Millward Brown International PLC; Research International Ltd.; The Henley Centre; Promotional Campaigns Worldwide; Anspach Grossman Portugal Inc.; Mendoza, Dillon & Asociados Inc.; Ogilvy & Mather Direct.

WPP Group plc

views updated Jun 11 2018

WPP Group plc

27 Farm Street
London W1J 6RJ
United Kingdom
Telephone: (20) 7408-2204
Fax: (20) 7493-6819
Web site: http://www.wpp.com

Public Company
Incorporated: 1971 as Wire & Plastic Products Ltd.
Employees: 65,000
Gross Billings: £20.8 billion (2001)
Stock Exchanges: London NASDAQ
Ticker Symbol: WPP
NAIC: 541810 Advertising Agencies

WPP Group plc operates as one of the largest communications services groups in the world, owning some of the most famous names in the advertising industry. These include the international media advertising giants JWT Group Inc., Ogilvy & Mather, and Young & Rubicam, the public relations firm Hill and Knowlton Inc., and information and consultancy firm The Kantar Group. WPP’s clients include over 300 of the Fortune Global 500 and over half of the NASDAQ 100. The group has 1,400 locations in over 100 countries and its companies provide services in advertising, media investment management, information and consultancy, public relations and public affairs, branding and identity, and specialist communications.

The Birth of an Advertising Empire: Mid- to Late 1980s

WPP is largely the creation of English businessman Martin Sorrell. Armed with an economics degree from Cambridge and an M.B.A. from Harvard, he made his name as financial director of the advertising giant Saatchi & Saatchi plc, joining the firm in 1977 and playing a key role in its growth through acquisitions. In 1986, Sorrell set out to build his own advertising empire. In need of a quoted company as a nucleus for acquisitions, he and a stockbroker friend had already bought a 27 percent stake in Wire and Plastics Products PLC in 1985. Having gone public in 1971, it was the holding company for a group of wire and plastic manufacturing businesses whose main products were shopping baskets and other domestic wire products. Sorrell became chief executive, changed the name of the company to WPP Group plc, and with the support of the other directors began adding marketing services to its activities.

In 1986, WPP made 11 acquisitions in this field, including design houses, incentive specialists, sales promotion consultants, and an audio-visual company. Sorrell’s experience with Saatchi & Saatchi plc had taught him to be adept at publicizing his firm in the business press. He also followed their acquisition technique, buying companies on a five-year “earn-out” basis. In this way, the cost of the buyout is spread over a period of years, and the price finally paid for the company depends on the management increasing its pre-takeover profits.

In the first half of 1987, WPP turned its attention to the United States and acquired several companies there. Still purchasing marketing services companies, Sorrell professed to be uninterested in buying conventional advertising agencies at that time. In June 1987, however, WPP launched a bid for the JWT Group Inc., a media advertising agency in financial trouble in the mid-1980s. Although it had posted a loss in the first quarter of 1987 and takeover rumors were rife, some analysts were surprised to find the JWT Group bought out by a British company that had never owned a mainstream advertising agency. The two companies agreed to terms within two weeks and the whole JWT Group, including the public relations giant Hill & Knowlton Inc. and several satellite companies, became part of WPP.

The Ogilvy Purchase: 1989

In 1991, the company suspended all dividend payments and was forced to renegotiate its debts. Not helped by the effects of the Persian Gulf War and the continuing economic recession, the group’s billings fell for the first time, and by the end of the year its profits had fallen by 38 percent before taxes. In 1992, a further refinancing became necessary, and in return the banks took more of the equity but had limited voting rights. While Martin Sorrell remained chief executive of the firm, a new chairman was appointed.

After spending a few years restructuring, WWP began to slowly expand its operations. In 1992, the firm launched CommonHealth, a virtual healthcare marketing communications network. Three years later, The Kantar Group was created to act as a holding company for the company’s research businesses. Then, in 1996, WPP purchased a stake in Media Technology Ventures, a venture capital partnership designed to invest in emerging technology firms.

Expansion: Late 1990s and Beyond

Because of its financial troubles of the early 1990s, WPP had put its growth strategy on the back burner. The group’s financial position improved, however, and beginning in the late 1990s the group made a series of key purchases, launched new start-ups, and invested in media ventures. In 1997, WPP purchased a stake in Peapod, an online shopping service based in the United States; Syzygy, a digital media firm based in London; and HyperParallel, a San Francisco-based data mining firm. The company also invested in media firms in Latin America, Singapore, and Germany. In 1998, the firm acquired three high technology marketing consulting concerns along with United States-based Management Ventures Inc.; the Canada-based marketing research firm Goldfarb Consultants; Conway/Milliken, a research company based in Chicago; United States-based Alexander Communications, a technology public relations concern; and Asatsu-DK Inc., the third-largest advertising agency in Japan.

By this time, WPP had also launched MindShare, a new company involved in media planning, buying, and research in Europe and Asia. The firm also created Savatar, a start-up focused on new technology marketing in the United States. During 1998, profits rose by nearly 20 percent and non-media advertising—including Internet and Internet-related billings—accounted for 50 percent of the group’s revenue for the first time in its history. WPP’s frantic expansion pace continued in 1999 as the group made further investments in advertising communications-related firms and also acquired several companies, including Steve Perry Consultants, Shire Hall Group, Perspectives, The Brand Union, Blanc and Otus, Dazai Advertising, and P. Four.

WPP entered the new millennium focused on growth. While the group made a slew of acquisitions during 2000, its most publicized purchase of the year was that of Young & Rubicam Inc., a U.S. marketing concern. Sorrell made the firm’s initial offer in January, which was followed by several months of hostile negotiations. The $4.7 billion transaction was finally completed in September. It stood as the largest such deal in the advertising industry at the time and created the world’s leading marketing services group. That year, operating profits grew by 43 percent over the previous year to $631 million.

Company Perspectives:

WPP operates with six strategic objectives. They are: to continue to raise operating margins to the levels of the best performing competition; to continue to increase the flexibility in our cost structure; to improve share owner value by optimizing the investment of the company’s cashflow across the alternatives of capital expenditure; to continue to develop the role of the company as a parent company beyond that of a financial holding or investment company; to place greater emphasis on revenue growth; and to improve still further the quality of our creative output.

Sir Martin Sorrell—he was knighted in 2000—found himself involved in yet another attention-grabbing deal in 2001 when he made a bid for the Tempus Group plc, a media buying concern. By this time, WPP had amassed a 22 percent stake in the firm. Tempus, however, was not keen on a WPP takeover—its chairman, Chris Ingram, had made public the fact that he would never work for Sorrell—and looked to advertising conglomerate Havas to make a white knight bid. When Havas made its offer, WPP responded with a higher bid of $630 million.

The advertising industry as a whole suffered as the tragic events of September 11, 2001, sent the U.S. economy into a deeper decline. As a result of the weakening market conditions, Havas allowed its bid to expire, leaving WPP the sole bidder. Sorrell tried to back out of the deal, but his efforts were denied by the UK Takeover Panel. The deal was completed in late 2001.

WPP characterized 2001 as a brutal year in its annual report. Nevertheless, the group continued to report significant profits despite the downturn in the industry. Turnover increased by nearly 50 percent over 2000 figures and pre-tax profits climbed by 12 percent. By this time, marketing services accounted for just over half of the group’s revenues while countries outside of the United States secured 56 percent of turnover.

WPP’s long term goal was to become the world’s most successful and preferred provider of communications services to multinational and local companies. With Sorrell at the helm, the group was focused on overcoming hardships related to economic challenges, integrating both its Young & Rubicam and Tempus purchases, and increasing its marketing services business to 65 percent of total revenues.

Principal Subsidiaries

J. Walter Thompson Company, Inc. (U.S.); The Ogilvy Group, Inc. (U.S.); Young & Rubicam Inc. (U.S.); The Kantar Group; Hill and Knowlton Inc. (U.S.); Tempus Group plc.

Principal Competitors

Havas S.A.; The Interpublic Group of Companies Inc.; Omincom Group Inc.

Key Dates:

1971:: Wire & Plastics Products is incorporated and goes public.
1985:: Martin Sorrell and a stockbroker friend purchase a 27 percent stake in Wire and Plastics.
1986:: Sorrell is named chief executive and changes the name of the company to WPP Group plc.
1987:: WPP acquires the JWT Group.
1989:: The company purchases the Ogilvy Group and becomes the largest advertising group in the world.
1992:: CommonHealth, a virtual healthcare marketing network, is launched.
1995:: The Kantar Group is created to act as a holding company for the firm’s research businesses.
1997:: The group begins a major expansion effort.
2000:: WPP acquires Young & Rubicam Inc.
2001:: Tempus Group plc is purchased.