NEW YORK, May 12 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
reaffirmed the 'BBB+' (Triple-B-Plus) rating on the senior guaranteed notes of
WPP Finance (USA) Corporation, an indirect, wholly owned finance subsidiary of
WPP Group plc (WPP). Parent company WPP guarantees the total $300 million
notes. The rating action follows WPP's announcement that it has agreed to
purchase Young & Rubicam Inc. (YNR) in a stock-for-stock transaction valued at
approximately $4.7 billion. Subject to shareholder approval of both companies
and regulatory consents, closing of the acquisition is anticipated to occur in
the fall of 2000. The Rating Outlook is Stable.
In addition, DCR has assigned a 'BBB+' (Triple-B-Plus) rating to WPP's
$500 million senior unsecured bank revolving credit facility. The bank
facility expires July 2002 and is available to WPP as well as several
operating and finance subsidiaries. Borrowings under the bank credit
agreement are guaranteed by WPP and have mostly been outstanding at the
holding company and WPP Group US Finance Corp., the legal parent of Millward
Brown.
The acquisition of the highly regarded and complementary YNR will have a
favorable impact on WPP's business and financial profile. The combined entity
will become the largest marketing communications firm in the world with a
business portfolio well diversified by client, geography and function. The
acquisition brings together three leading global advertising agency networks,
three major public relations firms, a substantial research business and a
solid collection of direct marketing, sales promotion and new media companies.
WPP's credit protection measures should improve modestly as a result of the
purchase of the comparatively less-leveraged YNR. Management expects future
cost savings realized through synergies to be at least $30 million per year.
If coupled with a conservative financial policy, further improvement in
WPP's credit ratios driven by continued revenue growth and increased profit
margins would have positive implications for the company's ratings. However,
given the potential for personality, cultural and strategic clashes, the
challenges of ultimately integrating two sizeable professional service
organizations will be notable and could negatively impact client and staff
retention and thereby cash flow. Certain senior YNR executives have signed
employment and no-sale (of shares received from merger) agreements, generally
of one year in duration.
DCR estimates that on a combined basis yearend 1999 total debt-to-EBITDA
and EBITDA-to-gross interest were approximately 1.5 times and 9.5 times,
respectively. (Total debt of YNR includes $288 million of convertible
subordinated debentures issued in January 2000, the proceeds of which were
assumed to be used to repay $124 million of bank borrowings.) At yearend
1999, WPP's total debt-to-EBITDA and EBITDA-to-gross interest were about
1.7 times and 8.4 times, respectively. Combined pro forma yearend 1999 total
adjusted debt-to-EBITDAR and fixed-charge coverage are estimated at roughly
2.5 times and 4.6 times, respectively.
For additional research on WPP Group plc, visit DCR's web site at
http://www.dcrco.com (Quick Search: WPP). DCR's research is also available on
Bloomberg at DCR and First Call's BondCall Direct/Research Direct at
http://www.firstcall.com, as well as through other third-party providers.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Jenifer Casalvieri, 212-908-0239,
casalvieri@dcrco.com, or Thomas P. Razukas, CFA, 212-908-0223,
razukas@dcrco.com, both of DCR
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