It might be the PR deal of the century.
After a year of negotiations, monolith holding company Interpublic says it plans to acquire London-based International Public Relations (IPR), which owns PR brands Golin/Harris and Shandwick, in a $169.2 million stock swap.
The transaction represents the evolving PR climate where holding companies invest in agencies but also demand more bottom-line results.
"This is the biggest deal ever in PR [in terms of a purchase based on top billings]," says Ketchum CEO David Drobis. "But I welcome the competition and believe it is good for these companies."
Ketchum has experienced 40 percent growth since it was acquired by holding company Omnicom in 1996, he says. Omnicom also owns Fleishman-Hillard and Porter Novelli.
Shandwick has been an acquisition or merger candidate for some time because it lacks the financial muscle to grow profusely. It also underwent internal restructuring and overhauled its board of directors this year. Some predicted Shandwick would lose its standing if it didn't receive a financial infusion.
Interpublic already owns Weber Public Relations Worldwide, an up-and-coming top-15 agency which posted more than $70 million in fees in 1997. Weber is viewed as a leader in technology and communications. Almost at warp speed, Weber has been in the acquisition/partnership mode for the past several years and the IPR acquisition is expected to help Weber better leverage its power (PR NEWS, July 6).
When GH, Shandwick and Weber's fees are combined, the income inches close to Burson-Marsteller's reported 1997 billings of $264-plus million, earning it the top spot in the industry. Harold Burson, who founded the New York-based firm, was traveling last week and could not be reached for comment about the potential challenger.
Other than owning Weber, Interpublic has gained notoriety for its ownership of major ad companies such as McCann-Erickson.
In addition to Shandwick and Golin/Harris, IPR also owns dozens of other companies which have been integrated under the Interpublic name announced earlier this year. Golin/Harris's cornerstone account is McDonald's.
In other PR holdings, WPP owns Hill & Knowlton and Young & Rubicam owns Burson-Marsteller.
The Ins and Outs of Interpublic
English regulators and IPR's nearly 1,200 stockholders must approve the Interpublic acquisition, which is akin to a friendly takeover, according to sources. The deal was brokered internally by the two companies, not through a middleman.
For every 100 IPR shares, 1.845 Interpublic shares will be issued, according to terms of the deal. The news has been welcomed by investors as IPR's stock continues to surge. Since the deal was announced IPR's stock value grew 35 percent.
But the deal represents far more than a meeting of minds. PR has become more bottom-line oriented because holding companies, like Interpublic and Omnicom, buy PR boutiques and large agencies and invest much-needed capital into stagnant operations. The holding companies demand profits, creating a new competitive atmosphere.
"This was not done from a position of weakness - it was done from a position of strength," Lord Peter Chadlington, executive chairman of IPR told PR NEWS in an exclusive interview. "When we (Shandwick) went public in 1985, we had $2.5 million pounds in fees. This deal (in combined fees) represents about 100 times that."
Interpublic is one of the largest ad and marcom networks in the world, with 28,000 employees in 120 countries. IPR has 2,100 professionals in 82 offices, including a major presence in Asia where geographic pockets such as Beijing, Hong Kong, Shanghai, Singapore and Tokyo have been pegged as emerging global capitals for PR.
PR Leaders Come Together
But the deal is being closely watched as two definitive industry leaders attempt to balance an evolving organization. CEO Larry Weber is known as a visionary in both the PR and technology corridors, one of the leading markets for PR today, and enjoys the limelight.
Chadlington, who tends to be a bit more reserved in front of the media is, nonetheless, a renegade. He began Shandwick during an era when few recognized the revenue stream PR can yield. Chadlington says he has devoted every day since the winter holidays to closing the arrangement with Interpublic CEO Philip Geier, Jr.
Chadlington owns 6.8 percent of IPR's stock. Nearly 65 percent of its stock is held by about 10 U.K.-based financial institutions, such as Fidelity and Mercury Asset Management.
Emerging from the deal will be a new board, headed by Chadlington. Other members are:
- Larry Weber;
- Scott Meyer, CEO of Shandwick, Americas;
- Rich Jernstedt, CEO of Golin/Harris;
- Michael Murphy, MD of Shandwick, U.K.; and
- Eugene P. Beard, CFO of Interpublic.
(Golin/Harris, Rich Jernstedt, 312/729-4000; Interpublic, Philip Geier, 212/399-8000; IPR, 44/171-408-2232; Ketchum, Dave Drobis, 212/448-4200; Weber PR Worldwide, 617/661-7900