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Ad Giant’s Shareholders Give Banks Half of The Company

August 5, 1992 GMT

LONDON (AP) _ Shareholders of debt-plagued WPP Group PLC on Wednesday approved a deal that appeases WPP’s bankers by giving them nearly half of the world’s largest advertising company.

Banks get 48 percent of WPP’s stock in return for erasing some $270 million from a debt load that totaled between $1.1 billion and $1.5 billion, sources close to the deal said. The banks will hold 25 percent of the voting rights in the firm.

The deal, which averts the threat of banks forcing WPP into receivership, is intended to put WPP in a position to regain its financial health.

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″The alternative was pretty bleak,″ said Lorna Tilbian, a media analyst with the London investment banking firm S.G. Warburg. ″Letting the banks have half of it is better than giving away the whole.″

WPP shook up Madison Avenue through the 1987 hostile takeover of J. Walter Thompson, the huge American advertising concern. But WPP ran into trouble when it followed that purchase with the $865 million acquisition of rival Ogilvy & Mather two years later.

″J. Walter was a once-in-a-lifetime deal,″ Tilbian said. ″I suppose they tried to be greedy and get two in a lifetime.″

WPP paid a premium price for Ogilvy & Mather, then ran into problems as the worldwide recession hammered the advertising industry and shrank WPP’s cash flow.

The debt restructuring package faced objections from one of WPP’s biggest shareholders, Fidelity Investment Services, but Boston-based Fidelity said over the weekend it would stop fighting the arrangement.

″We’re now on the same boat and hopefully we’re all pulling in the same direction,″ said Malcolm Le May, managing director at Barclays de Zoete Wedd Ltd., which represented a syndicate of 28 banks with ties to WPP.

WPP executives would not comment on the deal.

The banks agreed to provide up to $150 million in additional loans as needed by WPP, according to sources familiar with the deal who spoke on condition of anonymity. The banks also agreed to hold their WPP stock for at least one year with the option to sell up to 25 percent of their stake in the second year.

WPP said its profits in 1991 fell about 38 percent, with revenues off 4.7 percent. WPP’s worldwide gross income fell to $2.66 billion in 1991, from $2.71 billion a year earlier.

WPP said in a statement the restructuring received the approval of 99.7 percent of its preferred shareholders. They were given voting control of WPP last November when the company failed to pay them dividends.

In addition to the big U.S. advertising companies purchased in the late 1980s, WPP also owns dozens of marketing service companies that deal in such fields as public relations and packaging design.