Ad giant clients could tip scale. British raid causes JWT accounts to think twice
British buyers have been storming the American market for the past few years, paying more money to acquire bigger and better US companies. But the latest intercontinental takeover battle may be decided not by shareholders or management, but rather by a company's own clients. In the first hostile attempt to take over a company in the advertising industry, Britain's leading marketing firm, WPP Group PLC, offered $420 million for JWT Group Inc., the parent of J.Walter Thompson, the fourth largest and second oldest advertising agency in the world.
JWT Group Inc., whose chairman has been criticized by Wall Street analysts and former JWT executives, is hoping to thwart the hostile bid. The J.Walter Thompson advertising subsidiary is getting some support from the company's equally famous clientele, among which are Kraft, Kellogg, Goodyear Tire & Rubber, Ford, Burger King, Eastman-Kodak, and Scott Paper.
Both Goodyear and Eastman-Kodak have threatened to go elsewhere if the takeover succeeds. And ``if you aren't buying any clients, then what are you getting?'' asks James DeVoe, vice-president of advertising at Goodyear.
JWT is in a weak position right now, analysts say. The company holds little of its own stock, has seen profits fall as a result of internal problems, yet has a very strong marketing base. This makes it a very attractive takeover target but leaves it in no position to bargain, says one New York analyst, who asked not to be named.
While Martin Sorrell, WPP's chairman, is unlikely to be daunted by initial managerial or client resistance, he could be forced to reconsider if other major clients respond with similar defection threats. Mr. Sorrell's ``hostile'' plan - which includes replacing of all upper level management - probably would force many clients to leave, says JWT spokesman Donald Deaton. The agency's ``relationship with clients goes very deep ... all the way to the board.''
Such a takeover would hamper that ``critical relationship ... lending such a jolt to the structure that the resulting team is likely to be wrong,'' Mr. DeVoe says. Therefore, Goodyear ``shouldn't be taken for granted'' as an automatic client in the event of takeover.
(Incidentally, Goodyear also fended off a hostile takeover bid last fall by a group of British investors headed by Sir James Goldsmith. But the company says its attitude toward WPP's impending takeover is not related to this experience.)
Other analysts, like Alan Gottesman of L.F. Rothschild, Unterberg, Tonbin, argue, however, that takeovers actually affect a company's business very little. ``If the same good people who are producing the ads are still in place after a change in management, the advertising will not be affected,'' Mr. Gottesman says.
But as mergers and takeovers crowd the advertising industry, advertising itself is being hurt, critics say. Client conflicts, which already afflict the many holding companies that have acquired several large agencies, are increasing, and companies are fighting more and more client defections.
When different accounts with competing products end up under the same holding company as a result of a merger - even a friendly one - the agency will either drop one account or a client will leave to avoid conflict, says Mr. Deaton of JWT. It isn't often, says Mr. Deaton, that the competing accounts do not effect each other.
And when senior management takes its eye off advertising and becomes more concerned with financial manipulation, it will be counterproductive to the goal of making great advertising, says DeVoe of Goodyear.
``We view any change in the management and ownership of J.Walter Thompson as negative and disruptive,'' concurs J.Phillip Samper, Eastman-Kodak's vice-chairman and executive officer.
While most of the other clients have declined to comment on JWT's internal affairs, statements issued by companies such as Kraft have recognized that internal stability is necessary for an account to perform well. ``We hope this disruption will pass so that JWT employees can focus on, and devote energies to, building both their own business and that of their clients,'' says Scott Horne, a spokesman for Kraft.
But Sorrell, a former financial officer at Saatchi & Saatchi, the leading ad agency, is described as one who doesn't give up easily. His WPP Group says it is prepared to negotiate a higher offer of $515 million.
Britain's Saatchi & Saatchi has been buying up US agencies left and right for several years now. With Sorrell's skill, Saatchi bumped J.Walter Thompson out of the No. 1 position it held from the end of World War II until 1978 as the largest advertising agency in the world.
The WPP bid for JWT comes with British firms having dished out billions to buy or attempt to buy no fewer than seven US corporations - most of which are much bigger than they are - since the start of the year.
British firms have been able to get financing for almost any commercially viable deal. A booming British stock market, a weaker dollar, and a new - though still reluctant - willingness of British merchant bankers to accept leveraged financing (substituting debt for a company's assets) has spurred on the pursuit of increasingly larger companies in America, market observers say.
Demonstrating how willing they are to spend extra money for a piece of America, British companies have made major bids this year for Standard Oil Company, Harcourt Brace Jovanovich Inc., and Stauffer Chemical, among others.