Filed by WPP Group Plc
Pursuant to Rule 425 under the Securities Act
Subject Company, Young & Rubicam Inc.
Commission File No. 001-14093
FOR IMMEDIATE RELEASE - 12 MAY 2000
PART I
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 ((pound)3.2bn) and EBIT of $704
million ((pound)435 million)
| | Clearly established as #1, #2 or #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 ((pound)3.2 billion) and EBIT of $704
million ((pound)435 million). The current pro forma combined market
capitalisation is $14.5 billion ((pound)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 ((pound)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 : (pound)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.
<PAGE>
PART II
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.
<PAGE>
PART III
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 ((pound)9 billion), revenues of
$3.5 billion ((pound)2.2 billion) and pre-tax profits of $413 million
((pound)255 million). As at 31 December 1999 net assets were $528 million
((pound)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 ((C)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.
<PAGE>
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(R) 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 2.1 million options not becoming
exercisable on completion of the merger with an average strike price of
$42.63.
<PAGE>
<TABLE>
<CAPTION>
APPENDIX 1
ILLUSTRATIVE PRO FORMA COMBINED FINANCIAL INFORMATION
A. PROFIT AND LOSS ACCOUNT INFORMATION FOR THE YEAR ENDED 31 DECEMBER 1999
POUNDS STERLING INFORMATION
---------------------------
Y&R Y&R COMBINED
(POUND)M WPP AS REPORTED UK GAAP UK GAAP
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
U.S. DOLLAR INFORMATION
-----------------------
Y&R Y&R COMBINED
$M WPP AS REPORTED UK GAAP UK GAAP
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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), (c) 470.5 208.1 233.2 703.7
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 ((pound)52.5m)
(b) Adjusted to include $7.5m ((pound)4.6m) of equity income, gross of tax at
assumed 40% rate
(c) Adjusted to eliminate $17.6m ((pound)10.9m) goodwill amortization
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFORMATION BY DISCIPLINE
REVENUE BY DISCIPLINE - POUND STERLING INFORMATION
---------------------------------------------------------------------
(POUND)M WPP Y&R COMBINED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising & Media 1,013.1 513.2 1,526.3
Investment Management
Information & Consultancy 419.7 - 419.7
Public Relations & Public 178.9 195.9 374.8
Affairs
Branding & Identity, 560.9 352.3 913.2
Healthcare &
Specialist-Communications
------- ------- -------
2,172.6 1,061.4 3,234.0
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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
---------------------------------------------------------------------
Y&R COMBINED
(POUND)M WPP UK GAAP UK GAAP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising & Media 155.9 81.7 237.6
Investment Management
Information & Consultancy 42.1 - 42.1
Public Relations & Public 23.9 19.8 43.7
Affairs
Branding & Identity, 68.9 42.6 111.5
Healthcare &
Specialist-Communications
------- ----- -----
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE BY DISCIPLINE - U.S. DOLLAR INFORMATION
---------------------------------------------------------------------------
$M WPP Y&R COMBINED
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising & Media 1,639.0 830.3 2,469.3
Investment Management
Information & Consultancy 679.0 - 679.0
Public Relations & Public 289.4 316.9 606.3
Affairs
Branding & Identity, 907.4 570.0 1,477.4
Healthcare &
Specialist-Communications
------- ------- -------
3,514.8 1,717.2 5,232.0
- --------------------------------------------------------------------------------------------------
FOR DETAILS ON HOW THIS ILLUSTRATIVE PRO FORMA COMBINED FINANCIAL INFORMATION
HAS BEEN PREPARED PLEASE REFER TO THE NOTES AT THE END OF THIS APPENDIX.
</TABLE>
<TABLE>
<CAPTION>
EBIT BY DISCIPLINE--U.S. DOLLAR INFORMATION
-------------------------------------------
Y&R COMBINED
($)M WPP UK GAAP UK GAAP
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising & Media 252.2 132.3 384.5
Investment Management
Information & Consultancy 68.1 - 68.1
Public Relations & Public 38.7 32.0 70.7
Affairs
Branding & Identity, 111.5 68.9 180.4
Healthcare &
Specialist-Communications
----- ----- -----
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFORMATION BY GEOGRAPHY
REVENUE BY GEOGRAPHY--POUND STERLING INFORMATION
----------------------------------------------------------
(POUND)M WPP Y&R COMBINED
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 357.7 121.9 479.6
America, Africa & Middle
East
------- ------- -------
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.
</TABLE>
<TABLE>
<CAPTION>
EBIT BY GEOGRAPHY--POUND STERLING INFORMATION
---------------------------------------------
Y&R COMBINED
(POUND)M WPP UK GAAP UK GAAP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 41.8 13.5 55.3
America, Africa & Middle
East
----- ----- -----
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REVENUE BY GEOGRAPHY -- U.S. DOLLAR INFORMATION
--------------------------------------------------
$M WPP Y&R COMBINED
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 578.7 197.2 775.9
America, Africa & Middle
East
------- ------- -------
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.
</TABLE>
<TABLE>
<CAPTION>
EBIT BY GEOGRAPHY -- U.S. DOLLAR INFORMATION
---------------------------------------------------------------
Y&R COMBINED
(POUND)M WPP UK GAAP UK GAAP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 67.6 21.8 89.4
America, Africa & Middle
East
----- ----- -----
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
B. CASHFLOW INFORMATION FOR THE YEAR ENDED 31 DECEMBER 1999
POUND STERLING INFORMATION:
----------------------------------------------------------------
Y&R COMBINED
$M WPP UK GAAP UK GAAP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
U.S. DOLLAR INFORMATION
--------------------------------------------------------
Y&R COMBINED
(POUND)M WPP UK GAAP UK GAAP
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 generation 381.8 275.5 657.3
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.
</TABLE>
<PAGE>
C. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
POUND STERLING INFORMATION
-------------------------------------------------------------------------
Y&R
Y&R UK GAAP COMBINED
(POUND)M WPP US GAAP ADJUSTMENT UK GAAP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
U.S. DOLLAR INFORMATION
-------------------------------------------------------------
Y&R
Y&R UK GAAP COMBINED
$ M WPP US GAAP ADJUSTMENT UK GAAP
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tangible Assets 318.3 194.6 - 512.9
Intangible Assets (a) 1,230.3 353.9 (353.9) 1,230.3
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 ((pound)218.7m) goodwill
(b) Adjusted to eliminate $237.6m ((pound)146.8m) unrealized gain on marketable securities gross of tax
(c) Adjusted to eliminate $34.9m ((pound)21.6m) long term deferred assets and
to reclassify $54.2m ((pound)33.5m) accounts receivabLe >1 Year from long term
assets to current assets
(d) Adjusted to eliminate $50.3m ((pound)31.1m) current
deferred tax assets and to reclassify $54.2m ((pound)33.5m) accounts receivable
>1 Year from long term assets to current assets
(e) Adjusted to reclassify
$88.6m ((pound)54.8m) of overdrafts from accounts payable
</TABLE>
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 (pound)1:$1.6178 and
translating the balance sheet information at the year end rate 31 December
1999 of (pound)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 10-K
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 / (pound)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/(pound)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
((pound)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
(pound)1:$1.6178 and translating the balance sheet information at the year
end rate 31 December 1999 of (pound)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 (pound)3 to (pound)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.
<PAGE>
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 York, 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.
<PAGE>
INVESTORS SHOULD READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN IT
BECOMES AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS.
