LAST weekend Sir Martin Sorrell spent Sunday with clients watching Rubens Barrichello see off world champion and Ferrari team-mate Michael Schumacher to win the Italian Grand Prix.
He may have seemed a bit distracted. The WPP chief executive was engaged in a different kind of race — one that would secure his company’s place as the world’s largest advertising and marketing-services firm.
Sorrell had set a 2pm, New York time, deadline for his $1.3 billion (£724m) bid for Grey Global, the US advertising firm. Ed Meyer, Grey’s long-serving chairman, had convened a board meeting at the company’s Manhattan offices to discuss the options. Competing against Sorrell were Havas, the French advertising group, and a venture capital-backed bid from Hellman & Friedman and Kohlberg Kravis Roberts.
It was 7.55pm in Italy, minutes from WPP’s New York deadline, and Sorrell was at dinner with his clients. He had still heard nothing and was beginning to lose hope when he got an e-mail from Jack Levy at Goldman Sachs, Grey’s banker, asking him to call.
Sorrell said: “At exactly the same time the client I was having dinner with — who happens to be a client of Grey’s as well — was on the phone and I overheard him talking to Ed Meyer. Ed was trying to get one over on me by telling him first.”
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Not many people get one over on Sorrell, and for him this was a particularly sweet victory. The venture-capital bid was being advised by Mike Dolan, former boss of WPP’s Young & Rubicam (Y&R) division. Relations between the two men are described as “contentious”.
Better still, Sorrell had scored a 3-0 victory against the French. Havas and WPP clashed over Sorrell’s eventually successful bid for Cordiant and before that over Tempus, where again Sorrell won through. There is little love lost between Sorrell and Havas boss Alain de Pouzilhac. Having slipped so far down the rankings, Havas has analysts wondering if the next match could take it out of the game entirely.
It is now almost 20 years since Sorrell bought a controlling stake in Wire and Plastic Products, a London-listed maker of shopping baskets. Today, after an audacious series of bids, WPP is one of the handful of British companies, along with BP and Glaxo Smith Kline (GSK), that are truly major players on the world scene.
With the new addition, WPP pips Omnicom as the biggest advertising holding company in the world. Omnicom reported $8.6 billion in revenue last year, while Grey and WPP’s combined sales were $8.8 billion.
“I don’t think he’s ever going to say this, but really this is the deal that makes him No 1,” said Lorna Tilbian, analyst at Numis Securities. “And I think that matters a lot to Martin. Of course, the big thing in life is being the best, not just the biggest, and Martin won’t be happy until he’s both.”
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Sorrell said the deal gave WPP new clients while allowing the firm to deepen its offer to those it already shared with Grey. It gives WPP access to Grey’s long relationship with Procter & Gamble (P&G), the consumer-goods giant, and builds on WPP’s relations with existing clients such as BAT, Diageo, Pfizer and GSK.
Despite netting a $300m-plus fortune, Meyer is staying on at Grey to lessen the risk of losing clients, a problem that arose when WPP took over Y&R.
While the deal cements WPP’s position at the top of the advertising league, it does not “shift the needle fundamentally”, said Sorrell.
WPP’s avowed strategy is to expand its business in the developing countries — it is already the market leader in the so-called “Bric” countries: Brazil, Russia, India and China.
Grey does little to build WPP in those areas. But Sorrell believes that, as far as his global ambitions are concerned, the world is turning in his favour. “If you assume that advertising is going to double as a proportion of GNP by 2015, matching the mature countries, then these countries would account for about 38% of our business without us making any acquisitions,” he said.
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Sorrell said that although creative businesses got harder to manage the bigger they became, the advantages of size were in areas such as media buying — where companies buy adverts in a variety of media on behalf of clients such as GE or P&G. But with companies like Grey, his intention is to make sure they operate largely as an autonomous unit. “With multiple brands we can compete in a more effective way,” he said.
WPP can make more money out of the company by increasing its margins.
“It boils down to setting objectives,” said Sorrell. Savings can be made across the group in back-office functions such as IT and procurement.
Tilbian calculates that the acquisition will bring Grey’s historic margin of below 6% up to WPP’s group margin of 14% over the medium term. This and other factors would deliver earnings-per-share enhancement of approximately 3% in 2005 and more in subsequent years, she said.
The deal comes as the advertising industry shakes off the worst downturn in living memory. Sorrell, long among the most bearish of chief executives, is optimistic, if cautiously so, that the worst is over.
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“We have to watch out for showers,” he said. “No matter who wins the US election, Republican or Democrat, they’re going to have to deal with some heavy debts.”
Going into the recession, he said, corporations were the first to cut spending while consumers continued to shop. That trend may be reversing.
“Now it’s the consumer who is under pressure,” said Sorrell. “Corporations have cut debt and are now starting to spend again.” He should know.