WPP rescue to cost 13m pounds

THE troubled advertising group WPP will have to meet total fees of about pounds 13m in connection with its dollars 422m ( pounds 221m) refinancing proposal to rescue it from financial collapse, writes Neil Thapar.

The fees, which cover the costs of employing teams of financial advisers and pounds 9m for obtaining bank lending facilities, were disclosed in a formal document posted to shareholders yesterday.

These costs will virtually wipe out WPP's first-half operating profits, which the company estimates will amount to at least pounds 14.2m for the period to 30 June, against pounds 13m at the same time last year. The after-tax result is likely to show a substantial deficit.

In addition, Gordon Stevens, a former director of Unilever, is proposed as WPP's non-executive chairman in succession to David Ogilvy. Martin Sorrell will continue as chief executive. The refinancing - the second in two years - has been prompted by cash-flow crises at the group because of the recession and a dollars 1bn debt mountain.

The proposal involves a partial equity-for-debt swap under which WPP's banks will convert about dollars 272m of existing loans into about 52 per cent of its shares. The swap will involve the issue of almost 240 million new convertible shares at 60p each against WPP's market price of 45p. Shareholders will be entitled to subscribe for the new paper under an open offer but, with the market price substantially below the offer, few are expected to take up their entitlement.

Voting rights of the new shares are to be restricted to a quarter of WPP's total voting rights. The banks will also provide up to dollars 150m in new short-term loans.

The plans depend on the approval of WPP's preference shareholders who control 78 per cent of voting rights.

They are being asked to convert on the basis of 1,000 of their existing preference shares into 750 ordinaries. But some are holding out for better terms.

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