He's won a four-year takeover battle. Why isn't he celebrating?

Sir Martin Sorrell's troubles were only beginning when he captured Tempus, says Clayton Hirst

Judging by the web pages of the marketing services giant WPP and its new media buying subsidiary Tempus, Britain's most extraordinary takeover battle of recent times never actually happened.

If you believe the WPP website, Sir Martin Sorrell's group has only just made a cash offer for Tempus.

As for Tempus, chaired by Chris Ingram, its website is even more behind the times. The latest "news item" says the company has accepted an offer from French rival Havas.

Perhaps Mr Ingram and Sir Martin are in denial. Perhaps it's because both companies are in the business of crafting "images" and "messages". But the deal that neither really wanted is now a reality and the two adversaries are trying to make the best of it.

On Thursday WPP announced that it owns 96 per cent of Tempus and is planning a compulsory purchase of the outstanding stock. Tempus could be delisted as early as 17 January. WPP already controls the group and is starting to integrate it. But there are difficult times ahead.

First let's fill in the vital part of the story the two companies' web pages miss out. Shortly after Havas made its offer for Tempus, WPP – which had been stalking the company for four years – stormed in with a higher offer. The usual takeover mud-slinging then ensued, until WPP placed a 555p-a-share offer on the table. Havas could go no higher and Sir Martin was once again fêted as the great corporate dealer.

After the terrorist attacks of 11 September, things suddenly changed. Sir Martin decided he didn't want Tempus, after all, certainly not at the price he'd offered. His attempts to wriggle out of the deal, claiming "a material adverse change", were blocked by the City's Takeover Panel. A grumpy WPP was lumbered with Tempus.

Sir Martin now has three big issues to deal with: the global slowdown in advertising, client conflicts between the two groups and the question of what to do with Tempus's board of directors.

The last is the least of the problems and could even provide Sir Martin with some cheer. Mr Ingram and Sir Martin have never really seen eye-to-eye after the WPP boss bought 15 per cent of Tempus in 1997. The acrimony even created its very own urban myth, with Mr Ingram once supposed to have said of his rival: "I'd rather lick an abattoir floor than work for Martin Sorrell." While the words never passed his lips, the sentiment behind the statement wasn't misplaced.

When WPP first made the offer for Tempus, key jobs at The Media Edge, Sir Martin's media planning and buying business, were offered to Mr Ingram and Tempus's chief executive David Reich. However, well-placed sources claim that Sir Martin may now pass over both men for the posts.

One board member who may land a role is Mainardo de Nardis di Prata, the Italian boss of CIA (which stands for nothing more sinister than Chris Ingram Associates), Tempus's media-buying core. Insiders say he gets on well with Sir Martin and could be given co-chair of the enlarged Media Edge.

"Mainardo is Mr CIA – he may well survive," says one media analyst, who asked not to be named. "But the top two Tempus men will be shown the door. They have enough share options to spend their days fishing."

It may not be a bad time to retire to the river banks, as there are signs that the media sector could slip into a long decline.

In WPP's last set of results, Sir Martin warned that in the last three weeks of September revenues had fallen by "at least" $30m (£21.1m). The chief executive added that it would be "very difficult" to meet WPP's 15 per cent operating margin target in 2001. Analysts now predict the figure will be more like 13.5 per cent for the full year.

Perhaps more worrying for Sir Martin is the fact that WPP is being outperformed by some of his competitors.

A new report published by SG Securities says: "[WPP] is falling short of key rivals such as Omnicom in net new business wins and organic revenue growth."

According to SG, WPP won $2bn (£1.4bn) of net new business in the first nine months of the year, compared to Omnicom's $3.4bn (£2.4bn). The dark days of 1991, when WPP almost collapsed as US and UK advertisers turned off the taps, must play heavy on Sir Martin's mind.

Already, there are signs that times are getting hard for WPP's clients. Last week, Ford, one of Sir Martin's most cherished advertisers, stunned Wall Street by announcing that it would make losses four times the level previously expected.

Meanwhile, Henkel, the German household goods group, which is a client of Tempus's CIA division, has downgraded its forecasts and announced the closure of several factories.

On top of this, there is a danger that some Tempus clients may walk now that the WPP deal has gone through. It is understood that Henkel will be reviewing its advertising contacts in January. One of its concerns could be that The Media Edge acts for its rival Colegate-Palmolive.

Analysts at ABN Amro point to Nationwide, Zurich, Cussons and Norvartis as examples of other Tempus clients that may be concerned about perceived conflicts of interest. The chewing-gum manufacturer Wrigley is understood to be considering retendering its contract with Tempus, worth £20m, although advertising industry sources claim this has little to do with WPP's takeover.

When the takeover bid was in full swing, there was also talk that another big Tempus client, DaimlerChrysler, might want to re-tender because of WPP's long- standing relationship with Ford.

But a spokesman for DaimlerChrysler says: "We think that WPP can sort this out, so long as no commercially sensitive data is shared [with Ford]. There are frequent mergers in the advertising industry, and if we moved then we would face the danger that the new agency could also be bought out. We are keen to work with WPP to see how high we can build the fire walls within the agency." DaimlerChrysler's advertising work is carried out through DCMA, a joint venture between Tempus's CIA and a rival agency, FCB.

It is now up to Sir Martin and his fellow directors to ensure that other Tempus clients take the same attitude to the merger as DaimlerChrysler. Because if they don't, the value in the deal that both WPP and Tempus seem so unwilling to talk about will fade away.