BUSINESS

Mediums and messages

A huge takeover stuns the advertising industry

ANN WALMSLEY May 29 1989
BUSINESS

Mediums and messages

A huge takeover stuns the advertising industry

ANN WALMSLEY May 29 1989

Mediums and messages

A huge takeover stuns the advertising industry

Many Madison Avenue advertising executives call Martin Sorrell “the British ogre.” It was his financial wizardry that created the world’s largest advertising conglomerate, Saatchi & Saatchi Co. PLC in Britain. And it was Sorrell who introduced the New York City ad industry to the world of hostile takeovers, with his 1987 acquisition of JWT Group, the parent company of J. Walter Thompson agency. Now the chairman of WPP Group PLC, the London-based advertising company, has triumphed in his most audacious scheme yet: to buy Ogilvy Group Inc., which owns the venerable New York ad agency Ogilvy & Mather Worldwide.

Ogilvy executives responded icily to Sorrell’s original proposal of a so-called merger in early May and fought fiercely to remain independent. But Ogilvy’s chairman, Kenneth Roman, could find no friendly U.S. bidders to match Sorrell’s offer of $64 a share in cash— up from the original $53.50. Roman invoked the memory of a great U.S. football coach when he told Ogilvy shareholders last week: “As Vince Lombardi said, ‘I never lost a game; occasionally, I just ran out of time.’ ”

The 44-year-old financier’s $ 1-billion takeover of Ogilvy comes at a time when U.S. advertising firms and advertising clients are

growing increasingly critical of major mergers in the industry. Creative directors say that the wave of takeover activity since 1985 has homogenized the style of individual agencies by placing profits ahead of creativity. And others fear that the upheaval in the industry has eroded service.

Industry analysts have also expressed concerns about the financial soundness of forming such huge media conglomerates. Sorrell’s new empire, including J. Walter Thompson and Ogilvy, will be the world’s second-largest advertising, public relations and direct-marketing conglomerate, with billings of only $1.2 million less than Saatchi’s $16 billion. “I have a lot of respect for his business acumen,” says Fredrick Anschel, an analyst with the New York securities firm of Dean Witter Reynolds Inc. “He may be overreaching.”

In fact, some acquaintances of Sorrell say that the factor driving his bid was ego rather than financial gain. When Sorrell was financial director for Charles and Maurice Saatchi, he was often known as “the third Saatchi.” After Sorrell left, the brothers’ profits declined. Now, advertising executives say that the workaholic Sorrell wants to prove that he can build the world’s largest media-relations conglomerate. He is already riding high on his successes

with JWT, whose revenues increased to $665 million this year compared with $580 million in 1987. But Sorrell dismissed the personal criticism last week. Said Sorrell: “We are not the largest, nor do we want to be.”

Sorrell’s greatest coup in the deal was his swift success in overcoming Ogilvy's fiercely resistant management. Ogilvy’s legendary founder, David Ogilvy, 77, even emerged from retirement in his château in France to assail the takeover proposal as an affront to the independence of his advertising business. “What I feel is nausea,” Ogilvy later told Maclean ’s from his Paris residence. “It took me 40 years to build that beautiful baby, then some little accountant comes along and thinks he can buy our clients.”

But last week, Sorrell dined with David Ogilvy in New York, and apparently overcame his objections and convinced him to accept a title of honorary chairman of WPP. And he satisfied Ogilvy management’s concerns about independence by guaranteeing that the agency would operate autonomously in competition with J. Walter Thompson for at least two years and that there would be no management changes.

Ogilvy directors agreed to Sorrell’s offer even though his bid was not the highest. A few hours before the deal concluded on May 15, Interpublic Group of Cos., a New York-based advertising conglomerate, delivered a merger proposal to Ogilvy worth roughly $70 a share. But Ogilvy directors rejected it on the grounds that the offer would amount to an exchange of Interpublic for Ogilvy shares—instead of cash—and would have created enormous client conflict problems.

And a survey published last week by the U.S. magazine Advertising Age suggested that Ogilvy could lose $600 million in billings as a result of the takeover. Several of Ogilvy’s clients have already begun to reconsider giving the firm their business. Edgar Bronfman Jr., executive vice-president of U.S. operations for Joseph E. Seagram & Sons, told Maclean’s, “I do not appreciate the idea that someone thinks he can buy the right to represent Seagram.” Although the takeover is expected to have little immediate impact on the Canadian operations of either Ogilvy or J. Walter Thompson, it poses some potential client conflicts. Ogilvy & Mather (Canada) Ltd. has accounts with Royal Trust and Quaker Oats Co. of Canada, while J. Walter Thompson Co. Ltd. represents the Bank of Montreal and Kellogg Salada Canada Inc. But Ronald Bums, president of J. Walter Thompson in Canada, said, “Not one Canadian client has put their account on hold.”

Sorrell must also confront critics who protest that in two years he may merge the two stylistically different agencies. Ogilvy, best known in Canada for its milk industry ads, prides itself on effective conservative advertising, while Thompson strives for creative brilliance. Sorrell’s maverick acquisition is clearly challenging the growing sentiment that bigger may not necessarily be better.

ANN WALMSLEY

LARRY BLACK

JEREMY HART