Merger with Young&Rubicam
WPP Group PLC
12 May 2000
WPP AND YOUNG & RUBICAM
TO CREATE LEADING GLOBAL COMMUNICATIONS SERVICES COMPANY
IN $4.7 BILLION TRANSACTION
Clients to Benefit From Unsurpassed Breadth of Resources and
Expertise
* Strong strategic fit with highly complementary brands
including three of the leading global communications
networks
* Pro forma 1999 revenues of $5.2bn (£3.2bn) and EBIT of $704
million (£435 million)
* Clearly established as No.1, No.2 or No.3 in every major
geographic market
* Broader client portfolio and wider array of communications
services enhance long-term revenue growth prospects
* Industry-leading focus on direct and internet businesses,
and valuable combined portfolio of internet and new media
investments
* Young & Rubicam ('Y&R') shareholders can elect to receive
either 0.835 new WPP ADR's 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 (based on the closing WPP ADR
price on 11 May 2000 of $63.50) and valuing Y&R on a
fully-diluted basis at $4.7 billion
* All stock transaction with fixed exchange ratio results in
equity split of approximately two thirds to WPP shareholders
and one third to Y&R shareholders
* Significant synergies expected to be realised through scale
and compatibility of combined operations; cost synergies
quantified to date in excess of $30m per annum
* Accretive to WPP earnings per share in the first full year
* Transaction to be accounted for as a purchase; tax-free for
U.S. purposes to Y&R shareholders
* After the close of the transaction, Thomas D. Bell will be
Chairman of Young & Rubicam Inc. and Michael Dolan will be
CEO of Young & Rubicam Inc. Effective immediately, Ed Vick
is Chairman and CEO of Y&R Advertising. Senior Y&R
operating heads have signed continuing employment agreements
* A group of senior Y&R executives have committed not to sell
two thirds of their Y&R shares and share equivalents for
one year
WPP Group plc ('WPP') (LSE: WPP; NASDAQ: WPPGY) and Young &
Rubicam Inc. ('Y&R') (NYSE: YNR) today announce that they have
signed a definitive merger agreement under which Y&R will join
the WPP Group of companies in a $4.7 billion transaction,
creating the world's leading communications services group. With
Y&R, the WPP Group will become the industry leader, offering its
expanded client base, which includes the majority of the Fortune
Global 500 and the Nasdaq 100, a comprehensive array of resources
in all service categories.
On a pro forma basis for the year ended 31 December 1999, the
combined group had revenues of $5.2 billion (£3.2 billion) and
EBIT of $704 million (£435 million). The current pro forma
combined market capitalisation is $14.5 billion (£9.6 billion)
(based on an estimated enlarged fully diluted share capital of
1.15 billion WPP shares). This would rank the group 34th in the
UK FTSE-100 and 109th in the FTSE Eurotop 300. Further financial
information is contained in Appendix 1.
Under the terms of the definitive agreement, which has been
unanimously approved by both companies' Boards of Directors, each
outstanding share of common stock of Y&R will be converted into
0.835 of a new American Depositary Receipt ('ADR') of WPP or, at
the election of the shareholder, 4.175 new WPP ordinary shares,
for each Y&R common share held at closing. WPP will then be
owned approximately two thirds by current WPP shareholders and
one third by Y&R shareholders.
All Y&R operating companies will continue to operate from their
current headquarters in the U.S. Y&R brings a third major
advertising agency network to WPP, the others being J. Walter
Thompson Company and Ogilvy & Mather Worldwide.
After the close of the transaction, Thomas D. Bell will be
Chairman of Young & Rubicam Inc. and Michael Dolan will be Chief
Executive Officer of Young & Rubicam Inc. Effective immediately,
Ed Vick is Chairman and CEO of Y&R Advertising. Five Young &
Rubicam directors will join the WPP Group Board. Senior Y&R
operating heads have signed employment agreements. A group of
senior Y&R executives have signed no-sale agreements in which
they have committed not to sell two thirds of their Y&R shares
and share equivalents (and, following closing, the new WPP shares
and share equivalents they will receive in exchange) for one year
from the date of the merger agreement. A four person
Transition Committee consisting of Mr. Bell, as Chairman, and Sir
Martin Sorrell, Mr. Dolan and Paul Richardson, WPP's Group
Finance Director, will oversee the transition as Y&R becomes part
of the WPP Group.
Sir Martin Sorrell, Group Chief Executive of WPP, said, 'This
transaction creates a worldwide leader. The two organizations
are highly compatible. We share a common philosophy and culture
of providing clients with integrated solutions to their marketing
needs, and seek to add value to our clients and our people. At
the same time, the two complement one another from a client,
functional and geographic point of view.
'As a part of our focused strategy to provide clients with a full
spectrum of services to meet every communications need, we look
forward to developing the strengths of the services provided, and
the geographic reach that Y&R will bring to WPP. Together, we
have the people and assets to create significant growth and value
for our clients, our people and our shareowners,' concluded Sir
Martin.
Mr. Bell added, 'Young & Rubicam's success over the past few
years is a reflection of the differentiating power of our
integrated communications model. Going forward, we want to take
this competitive advantage to the next level. To build the first
web-based marketing communications company that can create,
assess and refine marketing programs in real time with the speed
required of our clients by our new economy.
'By joining forces with WPP Group, we can accelerate that vision.
The fit between our companies is terrific, with leading brands in
every marketing discipline. Y&R clients will benefit from access
to new capabilities, as well as the additional reach and clout
that we'll enjoy in the marketplace. What is more, Y&R will be
well positioned to participate in and shape the future of
commercial communications, particularly in the area of
interactive marketing and e commerce.
'I know a bright future lies ahead for the Y&R companies under
the leadership of my talented colleague Mike Dolan, who has
played such a significant role in our recent success. And I look
forward to working with Martin to bring together our companies.'
According to Michael Dolan, Vice Chairman and Chief Financial
Officer of Young & Rubicam Inc., 'This is a terrific strategic
fit for both companies and a logical outgrowth of Y&R's recent
entry into the public market. As consolidation continues to
transform both the client and agency landscape, being a part of
WPP will ensure that our clients benefit from the best services
and that we continue to attract top talent in every field.'
The transaction will bring together the finest brands from the
major marketing disciplines. These include global advertising
giants Ogilvy & Mather Worldwide, J. Walter Thompson Company and
Y&R Advertising; four of the world's largest public relations
firms, Hill and Knowlton, Burson Marsteller, Ogilvy Public
Relations Worldwide and Cohn and Wolfe, as well as impiric
(formerly known as Wunderman Cato Johnson) and OgilvyOne, the
industry leaders in direct and interactive marketing. The
transaction also creates a company that will have the top
international media investment management operations (MindShare
and Media Edge), the industry's most extensive offerings in
healthcare communications (CommonHealth and Sudler & Hennessey),
as well as a range of firms in every persuasive communications
discipline, including market research (Millward Brown, Research
International and Kantar Media Research), corporate identity
(Enterprise IG and and Landor Associates) and strategic marketing
consulting. Both WPP and Y&R have also built leading-edge
capabilities to assist their clients in e-business and
interactive marketing. The combined group will have the broadest
Internet portfolio in the industry, capturing dotcom spending and
providing the industry's leading digital services.
The transaction clearly demonstrates WPP's intention to set
industry standards in global communications services. Together
with Y&R, WPP will offer the broadest and deepest range of
products and services in the industry, creating the pre-eminent
combination of agencies in advertising, media investment
management, information and consultancy, public relations and
public affairs and identity and branding, healthcare and
specialist communications services.
Estimated pre-tax annual cost savings resulting from the
transaction quantified to date amount to in excess of $30m (£20m)
per annum by the year ending 31 December 2001. Moreover, WPP and
Y&R believe that the combination has the potential to generate
stronger revenue growth in a number of areas. The transaction
provides an outstanding base for continued expansion, both with
clients in the consumer goods and services sectors, as well as
those in the fast-growing areas of information technology,
telecommunications, financial services, and entertainment and
media.
The transaction is expected to be accretive to WPP earnings in
the first full year following closing. The transaction will be
accounted for using purchase accounting and is expected to be tax-
free for U.S. purposes to Y&R shareholders.
WPP and Y&R intend to publish detailed information on the merger
for their shareholders in approximately two to three months.
Subject to WPP and Y&R shareholder approval and regulatory
consents, closing of the merger is targeted for fall (autumn)
2000.
A summary of the principal terms of the Merger is set out in Part
II of this release. Information on WPP and Y&R is contained in
Part III. Illustrative pro forma combined financial information
is set out in Appendix 1.
For ease of reference, unless otherwise stated, all currency
conversions between pounds sterling and US dollars have been
calculated at a rate of $1.503 : £1. Please note that WPP's
financials are shown under UK GAAP and Y&R's under US GAAP, with
a preliminary restatement to UK GAAP.
WPP is being advised by Goldman Sachs and Merrill Lynch. Y&R is
being advised by Morgan Stanley Dean Witter and Bear, Stearns &
Co.
An analysts' conference call for European-based analysts will be
held at 11am London time (6am EST) today and a call for US-based
analysts will be held at 8:30am EST today.
Enquiries:
WPP Group plc Young & Rubicam Inc.
Sir Martin Sorrell Media: Philippe Krakowsky
Paul Richardson 1 212 210 3165
Feona McEwan Investors: Jacques Tortoroli
44 207 408 2204 1 212 798 1097
1 212 632 2302
Morgan Stanley Dean Witter
Goldman, Sachs & Co. Michael J. Boublik
James Del Favero Kevin C. Cox
Melanie White 1 212 761 4000
1 212 902 1000
Morgan Stanley & Co. Limited
Goldman Sachs International Piers de Montfort
Richard Campbell-Breeden 44 207 425 5007
44 207 774 1000
Bear, Stearns & Co.
Merrill Lynch & Co. Adam Blackman
David Weil 1 212 272 6623
1 212 449 1000
Merrill Lynch International
Philip Yates
44 207 628 1000
Goldman Sachs International and Merrill Lynch International,
which are regulated in the UK by The Securities and Futures
Authority Limited, are acting for WPP Group plc in connection
with the transaction and for no one else and will not be
responsible to anyone other than WPP Group plc for providing the
protections afforded to customers of Goldman Sachs International
and Merrill Lynch International or for providing advice in
relation to the transaction.
1. Key Terms of the Transaction
Under the terms of the Transaction, Y&R shareholders will be
entitled to receive 0.835 of a new WPP American Depositary
Receipt (ADR) or, at the Y&R shareholder's election, 4.175 new
WPP ordinary shares, for each Y&R common share held at closing.
WPP shares will remain officially listed on the London Stock
Exchange and listed on NASDAQ in the form of American Depositary
Receipts. WPP will apply for the new shares to be issued to
Y&R's shareholders in connection with the Merger to be officially
listed on the London Stock Exchange and for the American
Depositary Receipts to be listed on NASDAQ .
2. Merger Agreement
The Merger Agreement, dated as of 11 May 2000 (the 'Merger
Agreement'), sets out the terms of the Merger, including
conditions to closing, certain termination rights, mutual
representations and warranties and various covenants relating to
the operation of the businesses of WPP and Y&R during the period
until closing.
The Merger Agreement requires WPP and Y&R to effect the Merger
unless any one of the conditions to the completion of the Merger
is not satisfied or waived before the Merger Agreement is
terminated under the circumstances described below.
Transaction Structure
Y&R will merge with a subsidiary of WPP and will become a wholly-
owned subsidiary of WPP.
Conditions to Closing
The conditions to the closing of the Merger include approval of
the shareholders of WPP and Y&R, receipt of regulatory
approvals, including the consent of competition authorities, tax
opinions and the absence of any governmental order prohibiting
the Merger.
Termination Rights
The circumstances under which a party is able to terminate the
Merger Agreement include:
* if either party's shareholders do not approve the Merger;
* if the other party's board recommends another acquisition
offer;
* if the board of the other party withdraws or adversely
modifies its recommendation of the Merger at a time when
another acquisition offer for that other party is pending;
* if the other party materially violates any of its
obligations, or its representations and warranties are
inaccurate in manner that would have a material adverse
effect on that other party; or
* if the Merger is not completed within nine months of
signing, unless the failure is caused by a violation by the
party seeking to terminate.
Termination Fees
Each party (a 'paying party') has agreed to pay the other a
termination fee under the following circumstances:
* if a third party makes an acquisition offer to the paying
party and its shareholders' fail to approve the Merger and
within nine months after termination the paying party enters
into an alternative transaction;
* the directors of the paying party recommend another
acquisition offer or withdraw their recommendation of the
Merger at a time when an acquisition offer for the paying
party is pending;
* if a third party makes an acquisition offer to the paying
party and that party terminates the Merger Agreement because
the Merger has not been completed within nine months of
signing; or
* if (1) a third party makes an acquisition offer for the
paying party (2) the paying party's representations and
warranties are inaccurate or that party violates its
obligations under the Merger Agreement and in either case
the result is that a condition to the Merger cannot be
satisfied, and (3) within nine months the paying party
enters into an alternative transaction.
If Y&R is the paying party, the fee payable to WPP would be $175
million and if WPP is the paying party, the fee payable to Y&R
would be $75 million.
In a circumstance in which a fee described above is not payable,
each party would be entitled to a $25 million fee from the other
if the Merger Agreement is terminated because the other's
shareholders fail to approve the Merger.
Mandatory Shareholder Vote
Y&R and WPP are each required to submit the Merger for a vote of
its shareholders regardless of whether its board recommends
approval.
3. Accounting and Reporting Implications
The transaction will be accounted for using purchase accounting
under both UK and US GAAP. It is intended that WPP will continue
to have a December financial year-end. The accounts of the group
will be published in pounds sterling and will be prepared in
accordance with UK GAAP, with reconciliation to US GAAP. WPP
intends to introduce quarterly earnings reporting during 2002.
Information on WPP Group plc
1. Key Facts
WPP Group plc is one of the leading communications services
companies in the world. Through its 70 operating companies, it
provides clients with advertising, media investment management,
information & consultancy, public relations & public affairs,
branding & identity, healthcare and specialist communications
services. Leading WPP operating companies include Ogilvy &
Mather Worldwide, J. Walter Thompson, Conquest, MindShare, Hill
and Knowlton, Ogilvy Public Relations Worldwide, CommonHealth and
Enterprise IG. WPP is a member of BusinessWeek's Global 1000, the
Forbes International 800, the FTSE-Eurotop 300, Britain's FTSE
100 companies and the MSCI. The company aims to provide clients,
both national and international, with a comprehensive and, as
required, integrated range of communications services of the
highest quality, strategically and tactically.
The Group employs 39,000 people (including associates) in 950
offices in 92 countries. Clients include more than 300 of the
Fortune 500 and over one third of the NASDAQ 100. In the year
ended 31 December 1999, WPP had annual turnover (gross billings)
of $15 billion (£9 billion), revenues of $3.5 billion (£2.2
billion) and pre-tax profits of $413 million (£255 million). As
at 31 December 1999 net assets were $528 million (£326 million).
2. Ogilvy & Mather Worldwide
Ogilvy & Mather Worldwide is the tenth largest global agency
network. Employing 10,000 people in 359 offices and 100
countries, O&M is a communications and marketing company,
specialising in advertising and direct marketing, interactive,
brand identity, public relations, sales promotion and related
services.
OgilvyOne Worldwide, the direct and interactive division, is the
market leader, creating data-driven, brand communications that
fully exploit new and emerging technologies. Its interactive
unit, OgilvyInteractive, is the largest global network of its
kind and was ranked £1 New Media Agency by AdAge International in
1999 - a year in which it doubled its profits and grew 100
percent in terms of revenue.
3. J. Walter Thompson
Founded in 1864, J. Walter Thompson ('JWT'), the second largest
advertising agency brand in the United States, provides its
clients with both short-term sales success and long-term brand
value. JWT has built up an organization of global reach, with
278 offices and more than 8,000 employees in 88 countries. JWT
has become a total brand communications company offering a broad
array of services beyond classical advertising, such as
interactive communications, new forms of content advertising,
entertainment and digital communications ()JWT), direct response
and database marketing (ThompsonConnect) and recruitment
communications (JWT Specialized Communications). JWT crafts
integrated marketing solutions for its clients across all
communications channels using its proprietary protocol, Thompson
Total Branding, to drive short-term sales and build long-term
brand value.
4. Conquest
Conquest is a European network of advertising agencies based in
19 offices and 18 countries. With affiliates in North and South
America and Asia, Conquest offers an alternative approach to
international advertising, concentrating on the areas of
consumer, business-to-business, and corporate/financial
advertising, and integrated communications. Conquest is a
'challenger' agency that seeks to seize the upper hand for
clients by outthinking rather than outspending the competition.
Conquest's principal headquarters is in London.
5. MindShare
Launched in 1997 with the objective of pooling the media
planning, implementation and research operations of Ogilvy and J.
Walter Thompson into a single client resource, MindShare offers
clients competitive advantage and unrivalled service in
traditional and non-traditional areas of media. For instance,
the company performs TV program production, forecasting, digital
and interactive media, sponsorship, research, direct response and
idea generation. MindShare has 41 offices worldwide, with ten
more planned in 2000, and operates in 39 markets. The company has
3,500 employees in 56 offices around the world. In 1999 MindShare
became the largest media investment management company in the
world with annual billings of $17 billion.
6. The Kantar Group
The Kantar Group is the parent company for WPP's information &
consultancy businesses worldwide. Each business is a leader in
its own area of expertise or specialization and collectively the
group forms the largest custom research resource in the world.
The group comprises three worldwide businesses: Research
International, the world's largest custom research agency;
Millward Brown, the leader in the field of consumer and branding
research, renowned for its advertising/brand tracking and
developer of BRANDZ, an advanced diagnostic and predictive
proprietary research tool; Kantar Media Research, provider of
media research services globally, including Television Audience
Measurement, print and multimedia measurement and software
systems; plus two regional businesses (IMRB International and
Goldfarb Consultants).
7. Hill and Knowlton, Inc.
Established in 1927, Hill and Knowlton is the second largest
international public relations and public affairs consultancy
worldwide. Headquartered in New York, H&K has 63 offices in 34
countries, as well as an extensive associates network. The
company employs 1,800 people and had worldwide fee income of $243
million in 1999. H&K provides worldwide communications services
to businesses and institutions through its five worldwide
practices (marketing, corporate communications, technology,
public affairs and health/pharma). The company uses traditional
methodologies as well as cutting edge technologies to develop
appropriate and integrated communications strategies for clients.
Via H&K dotcom, the first integrated public relations global
service for both start-ups and bricks-to-clicks Internet
companies, more than 100 clients have already tapped into the
company's expertise.
8. Ogilvy Public Relations Worldwide
Ogilvy Public Relations Worldwide is a leading international
communications firm with specialty practices in health and
medical, marketing, technology, corporate communications and
public affairs. In 1999, the company reported worldwide fee
income of $125 million. Headquartered in New York, Ogilvy PR
operates 46 offices in 41 markets across the United States,
Europe and Asia. The firm includes three wholly owned
subsidiaries: Alexander Ogilvy (technology), B/W/R
(entertainment) and Feinstein Kean Healthcare (healthcare and
biotechnology). Ogilvy PR, which grew by 52% in 1999, is the
industry's fastest-growing, top twenty PR firm. The firm works
with the world's leading companies, and is the partner of choice
for more than 100 dotcom and e-businesses. Inside PR, recently
recognized Ogilvy PR as the 'Most Improved Major Agency.'
9. Other Activities
In the areas of identity and branding, healthcare and specialist
communications, WPP has acknowledged the potential of these
services to meet client needs for better targeted and more
efficient marketing approaches. Identity and branding and
healthcare have emerged as two important categories for both
strategic focus with potential for global scale. With
CommonHealth and Enterprise IG, WPP now has the most powerful top-
ranked brands in these sectors. CommonHealth's ventures with
other specialist communications companies in branding, identity,
promotion and event marketing and ethnic marketing yielded
pharmaceutical assignments in all three ventures. Other strategic
acquisitions in this sector added prestigious names to the client
roster and further enhanced the group's service offerings.
In 1999, a new media parent company, wpp.com, was formed to
coordinate WPP's new media activities across the group's
operating brands, to add value in the areas of new media and
technology for clients and to accelerate the development of WPP's
interactive capabilities and revenues. To date, wpp.com has
invested in start-up Internet companies with whom WPP wishes to
align itself strategically. wpp.com also holds minority stakes in
several European Internet and interactive marketing services and
invests in funds and B2B Internet enterprises.
Information on Young & Rubicam Inc.
Young & Rubicam Inc. is a world leader in commercial
communications - a network of preeminent companies in
advertising, perception management and public relations, brand
identity and design consultancy, database marketing and customer
relationship management and health care communications.
Headquartered in New York, Young & Rubicam ranks among the
world's leading consolidated marketing communications companies,
with over 339 offices in 73 countries around the world. In 1999,
worldwide billings were $16.7 billion.
Young & Rubicam's mission is to be its clients' most valued
partner in creating profitable growth by building, leveraging,
protecting and managing their brand assets - for both short-term
results and long-term success. To that end, Y&R is committed
to bringing together the most powerful combination of marketing
and communications disciplines available to meet the specific
needs of individual clients and their brands.
Y&R Advertising is a leading full-service consumer advertising
agency, offering expertise in consumer research, strategic and
creative development, and media buying and planning. In addition
to top-ranking agency networks in every major world region, Y&R
Advertising is represented in the Asia Pacific region by DY&R, a
longstanding joint venture with Dentsu of Japan, in which Y&R is
the majority partner.
* The Media Edge is a leading, full-service global media
company, known for its creativity in navigating the
ever-changing media environment. It's The Digital Edge
subsidiary, formed in 1999, specializes in planning and buying
for Internet media, electronic commerce and other fledgling
technologies and digital media.
* Also launched in late 1999, Y&R 2.1 is a new type of
advertising agency, dedicated to seamlessly integrating on-line
and off-line marketing communications in support of brands
around the world.
* The Bravo Group/Kang & Lee are full-service advertising
agencies in the United States devoted to creating communications
targeted at fast-growing multicultural groups. Bravo's focus is
on Hispanic Americans, Kang & Lee's on Asian Americans.
Impiric is a global, full-service consulting and communications
firm that provides strategic, customer-centered solutions to
business problems. Impiric's capabilities include global
resources in business consulting, e-commerce, database consulting
and management, teleservices, channel management, creative
communications and media. Impiric works closely with
KnowledgeBase Marketing, another Y&R unit that is a premier
company in the burgeoning field of customer relationship
management.
Y&R's Diversified Communications Group includes: Burson-
Marsteller, the world's largest public relations firm and a
pioneer in perception management; Landor Associates, one of the
world's leading branding consultancies and strategic design
firms; Cohn & Wolfe, a public relations firm known for creative,
out-of-the-box thinking; as well as Sudler & Hennessey one of the
only truly global health care communications agencies. Most
recently, Y&R acquired Robinson Lerer & Montgomery, a leader in
the field of strategic communications.
In the area of Internet marketing, Y&R has made considerable
investments that give it ownership of and access to leading-edge
capabilities. These include: Luminant, a key player in the
interactive services arena; Harris Interactive, a leader in
on-line market research; and Digital Convergence, MediaPlex
and iWeb, creators of new Internet vehicles that deliver
marketing messages and content to consumers.
Young & Rubicam brand strategies are driven by a unique and
proprietary diagnostic tool for managing brands, known as
BrandAsset. Valuator (BAV). Backed by Y&R's $60 million
investment, BAV has become the most comprehensive and powerful
database of consumer perceptions of brands. The model includes
data from over 100,000 consumers in 32 countries, concerning
more than 13,000 brands.
As at 31 December 1999, Y&R's net assets were $438.4m. For the
year ended 31 December 1999, Y&R's profit before tax was $278.2m.
Y&R currently has approximately 72.2 million shares in issue. In
addition Y&R has approximately 22.7 million options currently
exercisable or becoming exercisable on completion of the
transaction with an average strike price of $14.81. Y&R also has
2.1m million options not becoming exercisable on completion of
the merger with an average strike price of $42.63.
Appendix 1
Illustrative Pro Forma Combined Financial Information
A. Profit and Loss Account Information for the Year
Ended 31 December 1999
Pounds Sterling Information
£m WPP Y&R Y&R Combined
As Reported UK GAAP UK GAAP
Revenues 2,172.6 1,061.4 1,061.4 3,234.0
EBITDA (a),(b) 333.0 172.6 177.3 510.3
EBIT (a), (b),
(c) 290.8 128.6 144.1 434.9
EBIT Margin 13.4% 12.1% 13.6% 13.4%
For details on how this illustrative pro forma combined
financial information has been prepared please refer
to the notes at the end of this Appendix.
U.S. Dollar Information
$m WPP Y&R Y&R Combined
As Reported UK GAAP UK GAAP
Revenues 3,514.8 1,717.2 1,717.2 5,232.0
EBITDA (a),(b) 538.8 279.3 286.8 825.6
EBIT (a),(b), 470.5 208.1 233.2 703.7
(c)
EBIT Margin 13.4% 12.1% 13.6% 13.4%
For details on how this illustrative pro forma combined
financial information has been prepared please refer to
the notes at the end of this Appendix.
Footnotes to the Profit and Loss Account Information
(a) Excludes other income of $85m (£52.5m)
(b) Adjusted to include $7.5m (£4.6m) of equity
income, gross of tax at assumed 40% rate
(c ) Adjusted to eliminate $17.6m (£10.9m) goodwill
amortization
Information by Discipline
Revenue by Discipline - Pound Sterling Information
£m WPP Y&R Combined
Advertising &
Media 1,013.1 513.2 1,526.3
Investment
Management
Information & 419.7 - 419.7
Consultancy
Public 178.9 195.9 374.8
Relations &
Public Affairs
Branding & 560.9 352.3 913.2
Identity,
Healthcare &
Specialist-
Communications
------ ----- -------
2,172.6 1,061.4 3,234.0
For details on how this illustrative pro forma combined
financial information has been prepared please refer to
the notes at the end of this Appendix.
EBIT by Discipline - Pound Sterling Information
£m WPP Y&R Combined
UK GAAP UK GAAP
Advertising & 155.9 81.7 237.6
Media
Investment
Management
Information &
Consultancy 42.1 - 42.1
Public
Relations &
Public Affairs 23.9 19.8 43.7
Branding &
Identity,
Healthcare &
Specialist-
Communications 68.9 42.6 111.5
------ ------ --------
290.8 144.1 434.9
For details on how this illustrative pro forma combined
financial information has been prepared please refer to
the notes at the end of this Appendix.
Revenue by Discipline - U.S. Dollar Information
$m WPP Y&R Combined
Advertising & Media 1,639.0 830.3 2,469.3
Investment Management
Information & 679.0 - 679.0
Consultancy
Public
Relations &
Public Affairs 289.4 316.9 606.3
Branding & Identity,
Healthcare &
Specialist-
Communications 907.4 570.0 1,477.4
-------- ------- --------
3,514.8 1,717.2 5,232.0
For details on how this illustrative pro forma combined financial
information has been prepared please refer to the notes at the
end of this Appendix.
EBIT by Discipline-U.S. dollar Information
$m WPP Y&R Combined
UK GAAP UK GAAP
Advertising & Media 252.2 132.3 384.5
Investment Management
Information &
Consultancy 68.1 - 68.1
Public Relations 38.7 32.0 70.7
& Public Affairs
Branding & Identity,
Healthcare &
Specialist-
Communications 111.5 68.9 180.4
-------- ------ -------
470.5 233.2 703.7
For details on how this illustrative pro forma combined
financial information has been prepared please refer to the
notes at the end of this Appendix.
Information by Geography
Revenue by Geography-Pound Sterling Information
£m WPP Y&R Combined
North America 954.0 579.6 1,533.6
UK 434.7 94.5 529.2
Continental Europe 426.2 265.4 691.6
Asia Pacific,
Latin America,
Africa & Middle East 357.7 121.9 479.6
------ ------ -------
2,172.6 1,061.4 3,234.0
For details on how this illustrative pro forma combined
financial information has been prepared please refer to the
notes at the end of this Appendix.
EBIT by Geography-Pound Sterling Information
£m WPP Y&R Combined
UK GAAP UK GAAP
North America 141.7 93.8 235.5
UK 51.5 4.9 56.4
Continental Europe 55.8 31.9 87.7
Asia Pacific,
Latin America,
Africa & Middle East 41.8 13.5 55.3
------ ------ ------
290.8 144.1 434.9
For details on how this illustrative pro forma combined
financial information has been prepared please refer to
the notes at the end of this Appendix.
Revenue by Geography - U.S. Dollar Information
$m WPP Y&R Combined
North America 1,543.3 937.7 2,481.0
UK 703.3 153.3 856.6
Continental Europe 689.5 429.0 1,118.5
Asia Pacific,
Latin America,
Africa & Middle East 578.7 197.2 775.9
------ ------ -------
3,514.8 1,717.2 5,232.0
For details on how this illustrative pro forma combined
financial information has been prepared please refer to the
notes at the end of this Appendix.
EBIT by Geography - U.S. Dollar Information
$m WPP Y&R Combined
UK GAAP UK GAAP
North America 229.3 151.8 381.1
UK 83.3 8.0 91.3
Continental Europe 90.3 51.6 141.9
Asia Pacific,
Latin America,
Africa & Middle East 67.6 21.8 89.4
------ ----- ------
470.5 233.2 703.7
For details on how this illustrative pro forma combined
financial information has been prepared please refer to the
notes at the end of this Appendix.
B. Cashflow Information for the Year Ended 31 December 1999
Pound Sterling information:
£m WPP Y&R Combined
UK GAAP UK GAAP
Operating profit 263.5 139.5 403.0
Depreciation 42.2 33.1 75.3
Interest paid (32.7) (9.1) (41.8)
Tax paid (58.4) (18.3) (76.7)
Other cash flows 21.4 25.2 46.6
----- ----- ----
Net cash generation 236.0 170.4 406.4
Capital expenditure (64.6) (53.3) (117.9)
------ ------ ------
Free cash flow 171.4 117.1 288.5
Acquisition payment (209.8) (133.5) (343.3)
Share repurchases (17.9) (90.2) (108.1)
Dividends (21.1) (3.3) (24.4)
------ ------- -------
Net cash outflow (77.4) (109.9) (187.3)
====== ======= =======
For details on how this illustrative pro forma combined
financial information has been prepared please refer to
the notes at the end of this Appendix.
U.S. Dollar Information
$m WPP Y&R Combined
UK GAAP UK GAAP
Operating profit 426.3 225.7 652.0
Depreciation 68.3 53.6 121.9
Interest paid (52.9) (14.8) (67.7)
Tax paid (94.5) (29.7) (124.2)
Other cash flows 34.6 40.7 75.3
----- ----- -------
Net cash 381.8 275.5 657.3
generation
Capital expenditure (104.5) (86.2) (190.7)
------ ------- -------
Free cash flow 277.3 189.3 466.6
Acquisition payment (339.4) (216.0) (555.4)
Share repurchases (29.0) (146.0) (175.0)
Dividends (34.1) (5.3) (39.4)
------ ------- -------
Net cash outflow (125.2) (178.0) (303.2)
====== ======= =======
For details on how this illustrative pro forma combined
financial information has been prepared please refer to
the notes at the end of this Appendix.
C. Balance Sheet Information
Pound Sterling Information
£m WPP Y&R Y&R Combined
US GAAP UK GAAP UK GAAP
Adjustments
Tangible Assets 196.7 120.3 - 317.0
Intangible
Assets (a) 760.3 218.7 (218.7) 760.3
Investments (b) 356.9 248.8 (146.8) 458.9
Other Long Term
Assets (c) - 55.1 (55.1) -
------ ----- ------- ------
Fixed Assets 1,313.9 642.9 (420.6) 1,536.2
Current Assets (d) 1,892.5 849.2 2.4 2,744.1
Current
Liabilities (2,148.0)(1,050.2) - (3,198.2)
Long Term
Liabilities (731.7) (170.9) - (902.6)
------- ------- ------ ----------
Net Assets 326.7 271.0 (418.2) 179.5
======= ======= ======= ==========
Net
Funds/(Debt)(e) 91.9 (9.1) (54.8) 28.0
For details on how this illustrative pro forma combined financial
information has been prepared please refer to the notes at the
end of this Appendix.
U.S. Dollar Information
$m WPP Y&R Y&R Combined
As Reported UK GAAP UK GAAP
Adjustments
Tangible Assets 318.3 194.6 - 512.9
Intangible 1,230.3 353.9 (353.9) 1,230.3
Assets (a)
Investments (b) 577.5 402.6 (237.6) 742.5
Other Long Term
Assets (c) - 89.1 (89.1) -
------- ------ ------- ------
Fixed Assets 2,126.1 1,040.2 (680.6) 2,485.7
Current Assets (d) 3,062.5 1,374.1 3.9 4,440.5
Current
Liabilities (3,475.9) (1,699.5) - (5,175.4)
Long Term
Liabilities (1,184.0) (276.4) - (1,460.4)
-------- ------- ------ ---------
Net Assets 528.7 438.4 (676.7) 290.4
======== ======= ======= =========
Net
Funds/(Debt)(e) 148.6 (14.8) (88.6) 45.2
For details on how this illustrative pro forma combined
financial information has been prepared please refer to the
notes at the end of this Appendix.
Footnotes to the Balance Sheet Information
(a) Adjusted to eliminate $353.9m (£218.7m) goodwill
(b) Adjusted to eliminate $237.6m (£146.8m) unrealized gain on
marketable securities gross of tax
(c ) Adjusted to eliminate $34.9m (£21.6m) long term deferred
assets and to reclassify $54.2m (£33.5m) accounts receivable >1
year from long term assets to current assets
(d) Adjusted to eliminate $50.3m (£31.1m) current deferred tax
assets and to reclassify $54.2m (£33.5m) accounts receivable >1
year from long term assets to current assets
(e) Adjusted to reclassify $88.6m (£54.8m) of overdrafts from
accounts payable
Notes
(1) Illustrative pro forma combined pound sterling financial
information has been prepared by aggregating the WPP sterling
financial information and the Y&R dollar financial information
(adjusted as described below) translating the profit and loss
account and cash flow information at the average rate for the
year ended 31 December 1999 of £1:$1.6178 and translating the
balance sheet information at the year end rate 31 December 1999
of £1:$1.6182.
(2) WPP figures are sourced from the unaudited preliminary
announcement of results for the year to 31 December 1999 dated
February 16, 2000 prepared in accordance with United Kingdom
Generally Accepted Accounting Principles ('UK GAAP').
(3) Except as noted below Y&R figures are sourced from the
audited 10k filed on March 30, 2000 prepared in accordance with
United States Generally Accepted Accounting Principles ('US
GAAP'). The results for the year to 31 December 1999 do not
constitute statutory accounts. Statutory accounts for the year
ended 31 December 1999 will be delivered to the Registrar of
Companies in England & Wales in due course.
(4) Y&R segmental information and certain cash flow information
presented has not been previously published and has been sourced
from information provided by Y&R.
(5) In the preparation of the illustrative pro forma combined
profit and loss account information the following adjustments
have been made in an attempt to conform Y&R US GAAP financial
information to UK GAAP:
- Goodwill amortization ($17.6m / £10.9m in year ended 31
December 1999) has been eliminated on the basis that the
goodwill is assumed to have an indefinite life and hence is
not amortized but is subject to an annual impairment review;
- Income from associate investments ($7.5m/£4.6m in year ended
31 December 1999) has been included within EBIT in line with UK
GAAP(gross of tax at an assumed rate of 40%.)
- Y&R EBIT has been adjusted to exclude exceptional income of
$85m (£52.2m) arising on the disposal of fixed asset investments.
(6) Illustrative pro forma combined US dollar financial
information has been prepared by aggregating the Y&R dollar
financial information (adjusted as described in the notes above)
and the WPP sterling financial information, translating the
profit and loss account and cash flow information at the average
rate for the year ended 31 December 1999 of £1:$1.6178 and
translating the balance sheet information at the year end rate 31
December 1999 of £1:$1.6182.
(7) In the preparation of the illustrative pro forma combined
balance sheet the following adjustments have been made in an
attempt to conform Y&R US GAAP financial information to UK GAAP:
- Deferred tax assets have been eliminated as it is assumed
that under UK GAAP recognition criteria they would not be
recorded
- Marketable securities held on a long term basis are
stated at cost by elimination of the revaluation of such
securities
- Goodwill recorded within Y&R's balance sheet has been
eliminated as this would be subsumed within WPP's goodwill
arising on the acquisition of Y&R. No recognition has been
given to goodwill arising on the acquisition of Y&R by WPP.
- Various balance sheet reclassifications have been made to
conform the US GAAP reporting format to UK GAAP reporting
format. These include the reclassification of overdrafts
which are included within trade creditors under Y&R's US GAAP
format, which increases net debt.
(8) The transaction will be accounted for using purchase
accounting and additional goodwill will arise on the WPP balance
sheet. The amount will be established as at closing of the
transaction. Based on recent stock prices and the assumption
that 31 December 1999 book net assets of Y&R equal fair value it
would be in the range £3 to £4 billion.
(9) In the preparation of the illustrative pro forma combined
cashflow information the Y&R cash flow information has been
conformed to a UK GAAP presentation format. The cash flows
presented do not include working capital movements.
Note: All adjustments referred to in this appendix have been
made solely on the basis of publicly available information and
the assumptions listed above. No other adjustments have been
made to present the Y&R financial information on a basis
consistent with the accounting policies and practices of WPP, nor
to reflect the fair value of the assets and liabilities of Y&R to
be acquired by WPP. No assurance can be given as to the fair
presentation of the illustrative pro forma combined financial
information nor that all adjustments required have been
identified or properly calculated. Prior to shareholder votes on
the transaction Pro Forma financial information will be prepared
as required by both the UK Listing Authority and the Securities
and Exchange Commission which could be materially different from
the illustrative pro forma combined financial information
presented above. The presentation of the illustrative pro forma
combined financial information is based upon the simple
underlying assumptions listed above and is not necessarily
indicative of the results or the financial position that would
have been attained had the combined entities actually operated as
a Group for the period presented.
Appendix 2
Private Securities Litigation Reform Act Safe Harbor Statement
This news release includes forward-looking information and
statements about WPP, Y&R and the combined company after
completion of the transaction that are intended to be covered by
the safe harbor for 'forward-looking statements' provided by the
Private Securities Litigation Reform Act of 1995. Forward-
looking statements are statements that are not historical facts.
These statements include financial projections and estimates and
their underlying assumptions; statements regarding plans,
objectives and expectations with respect to future operations,
products and services; and statements regarding future
performance. Forward-looking statements are generally identified
by the words 'expect,' 'anticipates,' 'believes,' 'intends,'
'estimates' and similar expressions.
The forward-looking information and statements in this news
release are subject to various risks and uncertainties, many of
which are difficult to predict and generally beyond the control
of WPP and Y&R, that could cause actual results to differ
materially from those expressed in, or implied by, the forward-
looking information and statements. These risks and
uncertainties include those discussed or identified in the public
filings with the U.S. Securities and Exchange Commission (SEC)
made by WPP and Y&R; risks and uncertainties with respect to the
parties' expectations regarding the timing, completion and tax
treatment of the merger, the value of the merger consideration,
growth and expansion opportunities, market positions, conducting
worldwide operations, earnings accretion, cost savings, revenue
enhancements, synergies and other benefits anticipated from the
transaction, retention of employees, loss of business as a result
of client conflicts, reductions in clients' budgets for services
offered by WPP or Y&R and changes in management or ownership of
clients; and the effect of foreign exchange rate fluctuations,
and general economic conditions such as changes in interest rates
and the performance of the financial markets, changes in domestic
and foreign laws, regulations and taxes, changes in competition
and pricing environments, the occurrence of significant natural
disasters and general market and industry conditions.
ADDITIONAL INFORMATION
Information regarding the identity of the persons who may, under
SEC rules, be deemed to be participants in the solicitation of
stockholders of Y&R in connection with the merger, and their
interests in the solicitation, are set forth in a Schedule 14A
filed on the date of this press release with the SEC.
WPP and Y&R will be filing a proxy statement/prospectus and other
relevant documents concerning the transaction with the U.S. SEC.
INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS WHEN
IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH
THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors will be able to obtain the documents free of charge at
the SEC's website (www.sec.gov). In addition, documents filed
with the SEC by WPP may be obtained free of charge by contacting
WPP c/o WPP Group USA, Inc., Worldwide Plaza, 309 West 49th
Street, New Y&R, NY 10019-7399, (212) 632-2200. Documents filed
with the SEC by Y&R will be available free of charge by
contacting Young & Rubicam Inc., Legal Department, 285 Madison
Avenue, New York, NY 10017, (212) 210-3000.
INVESTORS SHOULD READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY
WHEN IT BECOMES AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT
DECISIONS.
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