WPP buys Young & Rubicam for $ 4.7 bn

The deal brings to a close months of heated negotiations between Y&R’s chief executive and WPP’s CEO, who has been eager to buy the smaller New York-based company since at least last year.

The combination will create a marketing and advertising giant with combined revenue of $5.2 billion and earnings before interest and taxation of $704 million based on 1999 figures. The current combined market capitalization is $14.5 billion.

The transaction is also expected to accelerate consolidation in the advertising and marketing industry among the six largest holding companies in the world, including Omnicom Group Inc., the parent of BBDO Worldwide and DDB Worldwide, and Interpublic Group, the parent of McCann-Erickson WorldGroup and the Lowe Group. Omnicom, Interpublic and WPP are the industry’s three biggest companies.

Under terms of the transaction, Y&R shareholders can elect to receive either 0.835 share of WPP stock or 4.175 new WPP ordinary shares for each Y&R share, representing a current value for each Y&R common share of $53.02. This is based on the closing WPP ADR price May 11 of $63.50. It values Y&R, on a fully diluted basis, at $4.7 billion.

Y&R has 72.8 million shares outstanding, and a total of about 13 million options and convertible shares outstanding, according to Y&R’s investor relations.

The transaction is an all-stock deal, which will result in an equity split of around two-thirds of the enlarged group being owned by WPP shareholders and one-third going to Y&R shareholders.

WPP said the acquisition is expected to be accretive to its earnings per share in the first full year following completion.

The enlarged group’s client base will include the majority of the Fortune Global 500 and the Nasdaq 100.

WPP also said it expects to realize significant cost-savings from the combination. Savings quantified to date are in excess of $30 million per annum, the company said.