Advertising's Hard Charger Is Feeling His Oats Again

A warm breeze blows across the rooftop patio where Martin S. Sorrell sits, sipping mineral water and confidently sketching out the Big Picture for his advertising conglomerate, WPP Group PLC. As multinational clients such as Ford, Unilever, Kraft General Foods, and Nestle expand globally, so will WPP, which is already pushing into China, Vietnam, and India. "The way the world is going, that's where we're headed. We're a total reflection of our clients," says Sorrell.

Two years ago, few could have imagined that Sorrell, now 49, was headed anywhere other than out the door. In 1992, irate lenders came within an inch of ousting him from the chief executive's office at WPP, which was about to default on $1 billion in debt. Even today, some problems linger. But there's good news, too, from his top agencies, J. Walter Thompson Co. and, especially, Ogilvy & Mather Worldwide Inc., which landed the global IBM account in June. The money is flowing as well: On Aug. 10, WPP reported a 50% jump in six-month pretax profit, to $55 million, on a 4% revenue increase. Martin Sorrell is back in the game.

It was a lot of hard work. Sorrell had to slash salaries, close offices, and sell off real estate, all to recover from his overreaching ways. Now, although he has no regrets about his purchases, he admits that "maybe the timing was not well-advised" for taking over Ogilvy & Mather in 1989, just before the recession. Sorrell took on $780 million in debt to acquire Ogilvy, on top of the $540 million debt load from the 1987 acquisition of J. Walter Thompson.

BITTER MEMORIES. Restructuring that debt was the masterstroke. A 28-bank syndicate, led by Bankers Trust, Barclays, and J.P. Morgan, had once gladly backed Sorrell, but by 1991, its members had become his enemies. Sorrell eventually persuaded them to convert $275 million in debt into preference shares. "They were none too pleased. But we had to raise a lot of money because, frankly, the company might not have survived," says Rupert F. Walker, WPP's financial adviser at Samuel Montagu & Co. With WPP stock trading at $1.82, up from 33 cents two years ago, the banks are expected to convert their shares, sell them, and pocket $300 million in profits. Yet, pledges one banker in the group, "I'll never touch anything with Martin Sorrell's name on it again."

Bad feeling about that debt may not be Sorrell's only problem. Some $428 million in debt remains. One effort to trim it, by floating $200 million in new stock for WPP market-research companies, went nowhere after Britain's new-issues market wilted this summer. The company also still owes $50 million in so-called earn-out payments, a bit of financial wizardry Sorrell invented in which WPP makes installment payments on past acquisitions. The last of these payments is due by the end of 1995.

These remaining difficulties may ebb if business stays strong. Worldwide expenditures on advertising are projected by Zenith Media Ltd., a British media-buying firm, to rise by 5.5% this year and by 7.5% next year. Analysts expect WPP to end the year with $120 million in earnings, up 48% from last year (chart). Ogilvy & Mather and J. Walter Thompson have won $540 million in net new business through June.

Again, though, there have been setbacks. Ogilvy bagged IBM but lost conflicting accounts at Microsoft, AT&T, and Compaq Computer. Although Sorrell scoffs at the idea, analysts figure hiring new staff and opening new offices to service IBM will make the account a revenue loser for the rest of the year.

In public relations, WPP's Hill & Knowlton Inc. is losing money despite having closed four offices and brought in Howard G. Paster, President Clinton's former congressional lobbyist, as CEO.

The biggest test for Sorrell is to prove that his vision of integrated marketing can work. Sorrell is pushing clients to centrally allocate their marketing funds at WPP for everything from advertising to media buying. Yet while many big consumer-goods companies are centralizing functions more, most still prefer to let local managers choose their own ad agencies and PR firms.

ONE-STOP SHOP? Sorrell insists the strategy, which he used to justify his empire-building, "has more credibility now than ever before." He points to Ford Motor Co., WPP's biggest client, as a relationship where integrated marketing could blossom. Although Ford employs other agencies, it does use WPP for advertising, market research, PR, and direct marketing. As the carmaker reorganizes to better coordinate its offices around the world, Sorrell figures it may also someday consolidate its advertising and marketing as well, just as IBM has. WPP, he says, is in the best position to profit from any such consolidation.

Winning a string of global accounts would certainly improve Sorrell's already expansive mood and go a long way to restoring his reputation. Whatever happens, Sorrell's friends and enemies have not heard the last of him.

Before it's here, it's on the Bloomberg Terminal.