WPP GROUP PLC - Company Profile, Information, Business Description, History, Background Information on WPP GROUP PLC



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London WlX 6RD
United Kingdom

History of WPP GROUP PLC

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 pre-takeover 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.

Additional Details

Further Reference

Piggott, Stanley, 'OBM, a Celebration: 125 Years in Advertising,' London, Ogilvy Benson & Mather, 1975.

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