Market researcher Taylor Nelson Sofres agreed Monday to be acquired by WPP Group for £1.1 billion ($1.95 billion), in a deal that will reduce WPP's reliance on advertising ahead of an expected industry downturn.WPP Chief Executive Martin Sorrell has been talking for more than a decade about steering his company away from the volatile ad market into research and other marketing fields with more predictable profits. But, until now, his prolific deal making, including the 2004 acquisition of Grey Global Group, kept adding to advertising operations.
On Monday, the Taylor Nelson board reversed months of opposition to WPP's offer and advised shareholders to accept it. The bid, which can be extended, closes Wednesday. But it has already attracted 61% of Taylor Nelson's shares.
Sir Martin may have gotten an edge by bidding just as the financial crisis hit, scaring off rival buyers and thwarting Taylor Nelson's push for a higher bid.
"I don't think it's an over-the-top price," said Andrea Azzimondi, a media analyst at Pali International in London.
Taylor Nelson's steady income should make WPP less vulnerable to a downturn in ad spending if the U.S. and other big economies enter a recession, analysts say. Many research products, such as television ratings and retail market-share data, typically continue selling well even when advertising demand slackens. In addition, the research industry is growing fast in the developing world, and global companies often prefer to use a single research firm in hopes of getting comparable data on a range of countries.
Next year "is going to be a difficult year," for the ad industry, Sir Martin said in an interview Monday. "In a slowdown [research] does better, but on the upturn it is not growing quite as fast" as advertising.
Taylor Nelson also has been finding new work online, using MySpace.com and other Web sites to gauge demand for consumer products like carbonated beverages. MySpace is owned by News Corp., which also publishes The Wall Street Journal.
"When the going gets tough, [information] gives comfort you are on the right track," said David Lowden, Taylor Nelson's chief executive.
Combining Taylor Nelson with WPP's research unit, Kantar, would make Kantar the second-biggest market researcher by revenue, behind Nielsen, which is based in New York and Haarlem, the Netherlands. It would also make WPP the world's biggest marketing company by revenue, overtaking Omnicom Group.
Taylor Nelson and Kantar, both based in London, are a good fit geographically. Taylor Nelson is strong in Western Europe, while Kantar's research division is bigger in the U.S. Taylor Nelson has 15,000 employees; Kantar has 13,000.
With WPP's financial backing, Taylor Nelson could be better placed to take on Nielsen. Taylor Nelson has tried unsuccessfully for years to break Nielsen's dominance in the U.S. television-ratings business. This year it began selling data about U.S. viewing habits based on information collected from the set-top boxes of satellite-television provider DirecTV. A Nielsen spokesman declined to comment.
Complicating the picture, Nielsen and WPP work together to measure TV ratings outside the U.S. through a jointly owned Swiss company, AGB Nielsen Media Research. To satisfy antitrust concerns, WPP will have to sell either its stake in AGB Nielsen or Taylor Nelson's European TV-ratings business, Sir Martin said.
WPP has signed an optional agreement to sell the Taylor Nelson ratings business to Paris-based Ipsos, another big research company, but hasn't decided which business it wants to get rid of, he said. WPP will also have to sell assets in Ireland.
WPP, which typically operates its acquisitions as separate units, has forecast savings of £52 million a year from the Taylor Nelson deal. It plans to cut costs by combining the two companies' Internet panels -- panels of survey respondents recruited through the Web. Such panels are increasingly being used as a fast way to poll consumers.
One of the top priorities for WPP will be to hold on to key Taylor Nelson staff. Mr. Lowden, the Taylor Nelson CEO, says he would be open to taking a job at WPP but doesn't expect to be offered one. Sir Martin said it was too early to say what would happen to Mr. Lowden or how many Taylor Nelson employees would lose their jobs. "We haven't even got the deal done," he added.
One possible advantage for WPP: many Taylor Nelson employees worked in small operations that were acquired by the company and know what it is like to be swallowed by a larger organization.
Following the deal's closing, 40% of WPP's revenue would come from advertising and ad buying, down from 46% in 2007, when WPP had total revenue of £6.2 billion. The majority of its revenue would come from research, public relations, consulting, and other types of marketing. WPP owns five main ad agencies: Ogilvy & Mather, JWT, Y&R, Grey and United.
By: Aaron Patrick
Wall Street Journal; October 7, 2008
