The Australian and New Zealand operations of the world’s largest advertising group WPP will merge with STW Communications, Australia’s largest agency holding group.
The move will create a $512 million company with an expected annual revenue of $847m and EBIT of $142 million.
It is also expected to deliver a cost benefit of at least $15 million per annum through a range of synergies including savings in corporate and administration, property rationalisation, shared services functions and operating efficiencies.
The merger was announced today and follows STW’s decision last Friday to place its shares in a trading halt amid speculation about the takeover.
The merger will combine the local operations of WPP-owned agencies such as GroupM, MediaCom and GPY&R with the more than 70 agencies operated by STW including Madison Avenue and Ikon Communications.
It will also help align the interests of companies where WPP and STW have joint-ownership such as Mindshare, Ogilvy and Maxus.
STW chief executive Michael Connaghan said WPP had been a fantastic partner since the two groups came together to create Singleton Ogilvy and Mather in 1998.
“I believe this deal makes great sense,” Mr Connaghan said. “To finally align our shareholdings in those existing partnerships and now to expand our relationship across the full STW and WPP Australia and New Zealand portfolio of companies is an amazing opportunity.
“We have the potential to create a group unparalleled in this part of the world, totally focused on our home markets, but allowing our clients and people open access to the best thinking on a global level.”
Both Mr Connaghan and STW chief financial officer Lukas Aviani will continue to lead the merged businesses following the completion of the transaction.
As part of the deal, WPP has acquired a 61 per cent stake in STW and will now use STW as its primary vehicle in Australia and New Zealand. STW’s name is expected to change following the completion of the transaction and approval by shareholders.
WPP will be issued new STW shares at $0.915 a share, a 30 per cent premium to the 10-day volume weighted average price.
“The merger of our Australian and New Zealand operations with STW will give us a unique opportunity to offer our local and international clients a comprehensive set of services and to make sure we can offer the best talent through country management,” Sir Martin said.
“It will also enable STW to focus on the Australian and New Zealand markets, which it knows best, with a structure that will strongly incentivise its people.”
Australia and New Zealand is WPP’s fifth largest market after the US, UK, greater China and Germany.