Deal sealed to create $15bn advertising giant

Advertising group WPP revealed details of its $4.7bn (£3.1bn) agreed takeover of US rival Young & Rubicam yesterday, in a deal that will create the world's biggest advertising group.

Fleshing out an outline deal agreed earlier in the week, WPP said the takeover would give WPP shareholders two-thirds of the combined group and Y&R shareholders one-third, in what will be the largest acquisition in the history of advertising.

The deal puts WPP back ahead of US heavyweights Omnicom and Interpublic, creating a $15bn one-stop shop for mega-clients such as Ford, Mattel, Kraft Foods and Sears.

As agreed earlier, Y&R shareholders will be offered 0.835 new WPP American depositary receipts, or 4.175 new WPP ordinary shares, for each Y&R share, valuing Y&R shares at $53 each for a total $4.7bn, based on Thursday's close.

"This is quite a coup for [WPP chief executive] Martin Sorrell, considering the offer values Y&R at only at most 10 per cent premium to its last traded price," said Anthony de Larrinaga, analyst at SG Securities, who raised his recommendation on WPP to "outperform" from "hold".

Y&R chief Thomas Bell said he would leave the advertising group once the merger was completed. "My mother used to say that two cooks spoil the broth. A company needs one clear designated leader and I can't think of anyone better to lead this combination than Martin Sorrell," Mr Bell said.

"I'm going to work with the Y&R management team and [new chief executive] Mike Dolan to ensure the very best transition we can manage. Then at the appropriate time in the future, I'll go off and do other things," he added.

The deal brings under one roof WPP's US agencies J Walter Thompson and Ogilvy & Mather alongside Y&R, and creates a powerful force in public relations with Y&R's Burson Marsteller and WPP's Hill & Knowlton, as well as strong global businesses in design, direct marketing, market reseach and media buying.

WPP said the deal would create significant savings with at least $30m of cost synergies identified to date, and the London-based group expects the takeover to be earnings-enhancing in the first full year.

"The price is slightly below what we'd been factoring in and cost savings of $30m could be just the tip of the iceberg," said Alex De Groote, analyst at CCF Charterhouse.

The new combination - with pro forma 1999 revenues of $5.2bn - will have almost half its business coming from the US and $2.4bn of revenues from advertising.

After the close of the transaction, Mr Bell will be named chairman of Young & Rubicam, while Y&R finance director Mike Dolan will be named chief executive, with the headquarters remaining in New York.

Five Y&R directors will take seats on WPP's board and shareholders will be asked to vote on the takeover in the autumn when the deal is expected to complete.