It seems that nobody is prepared to let Young & Rubicam continue as
the world’s fifth largest agency.
All eyes are on Y&R as Sir Martin Sorrell, the chief executive of WPP,
circles around his US-based prey. Every move of the Y&R share price is
monitored by analysts, who are anticipating a WPP swoop at any
In reality, talks between the two have been going on since last year and
the two sides are still a long way from agreement, although some
shareholding Y&R senior executives are known to be keen to do a
Y&R would be a logical fit with WPP. The two share major clients - Ford
and Kraft General Foods - and the cultural match with J. Walter Thompson
and Ogilvy & Mather (WPP’s agency networks) is comfortable enough.
The major reservation expressed by observers is that neither Y&R nor WPP
has the depth or strength of management to make the deal a success.
A question mark also remains over whether Ford would be happy to have
all its eggs in one basket.
WPP is number three in the global league table behind Omnicom and the
Interpublic Group. A Y&R deal would leave Sorrell’s competitors in the
shade at a time when global domination is becoming an end in itself for
communications networks. Observers are not ruling out a hostile bid from
But why all the fuss about selling out? Y&R is a successful business
which has delivered the numbers every quarter since it went public in
May 1998. The company could be valued at around dollars 4 billion if a
deal went ahead.
Thanks to the success of its Dentsu tie-up, Y&R has weathered the recent
storms in Asia better than most agencies and its performance in Europe -
where it is the number two network - is stable and strong.
Y&R doesn’t have to sell but neither can it afford to stand still, so
some sort of deal seems inevitable. Ever since 20 per cent of the
company went public in May 1998, subtle changes have left Y&R open to
the possibilities that Wall Street has to offer.
Apart from the launch of the Media Edge (its global media company) Y&R
has remained superficially much the same company. The changes have been
among the senior managers, a good number of whom have retired on their
Peter Georgescu, the chairman and chief executive, retired at the end of
1999 after 36 years with the company. Joe de Deo, the vice-chairman,
retired last summer after 38 years. President John McGarry - described
by one rival as a ’titan of account management’ - and Fernan Montero,
Y&R Europe’s chairman and chief executive, also bowed out last year.
The departure of these Y&R stalwarts leaves the company ripe for change
but the strong-minded Tom Bell, who took over as chief executive at the
start of the year, is thought to be reluctant to hand over power without
having made his own mark. He has already protected his senior executives
with a timely new severance plan which would make forced redundancies
time-consuming, destabilising and very expensive.
MT Rainey, the joint chief executive of Y&R in London, says: ’Bell is
just as hard a deal maker as Sorrell. Y&R has a strong European network
with huge below-the-line capabilities and the acquisition of Rainey
Kelly Campbell Roalfe has given it a talent injection.’
However, despite seemingly healthy figures, Bell has inherited a Y&R
that has a few engineering problems. It is perhaps not as robust beneath
the surface as it would like to be, although it is not a company in
The agency was accused of preparing for its initial public offering by
taking on some big clients at very low commission. The overall margins
are protected by the success of its direct marketing and public
relations operations but the advertising business has suffered some
blows of late, in particular the loss of the US Army, the US Post Office
and the Blockbuster video accounts.
’Flotation took more management time and energy than anyone dreamt it
could,’ a Y&R insider says. Citibank, which was the largest advertiser
to centralise a global account when it moved wholesale into Y&R less
than three years ago, is already reviewing its dollars 500 million
The Y&R share price, which reached a peak of dollars 72 in late
December, is now down to just over dollars 40, but the shares are still
trading at almost double the issue price of dollars 25, so the recent
fluctuations are no indication of a dramatic fall from grace.
Shareholders, however, will be pressing Y&R to deliver ever-increasing
value and a deal with WPP would be an obvious step towards this.
’It would be a marriage without sexual attraction,’ one industry
observer comments. ’They would be doing it just because it makes sense
to get married.’
There are other possible partners for both WPP and Y&R. Sorrell could go
for an alternative independent network such as Bates, while Y&R could do
a deal along the lines of last year’s B COM3 tie-up between the MacManus
Group, Leo Burnett and Dentsu.
Rumours have also surfaced of a deal between Y&R and one of its global
clients, Arthur Anderson. Such a deal would certainly shake up the
communications industry and, as Arthur Anderson is a private company,
shareholder value would not be such an influence as it would be with a
It seems inevitable that significant change awaits Y&R, but there is
still a lot of negotiating to do and a lot of potential partners to