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With Lowe out of Olds, subject of Scali merger returns By Kevin McCormack and Cathy Taylo

NEW YORK–With the Lowe Group eliminated from the ongoing Oldsmobile pitch, sources said last week that contacts between WP

The discussions had been bogged down over price and the prospects of the Olds prize for IPG’s Lowe. However, reports that high-level discussions would be held this week in the U.K. were denied by both sides.
While speculation about a Lowe purchase of SMS surfaced last spring, sources then said that IPG was not willing to meet WPP’s asking price. Subsequently, Lowe emerged as a contender in the $140-million Olds review and the prospects of a merger were non-existent, given Scali’s win of the Mercedes-Benz account a year ago. But with Lowe out of Olds, both GM–a global IPG client–and Mercedes have reportedly sanctioned a Lowe-SMS merger.
WPP has made no secret of its interest in divesting SMS as on option to help alleviate its debt load. Jim Dougherty, an analyst at Dean Witter, said the holding company’s refinancing has left it needing a $150 million cash infusion by June 1994 in order to refinance its bridge loans. Given the current advertising environment, few think that WPP will be able to grow quickly enough to meet the payment. “They need to sell something, and they want to sell Scali,” said Dougherty. “At some point (WPP ceo) Martin (Sorrell) has to come up with the money. They have a potential buyer.”
Analysts have put the price tag for SMS at up to $80 million. A)so a factor in the price are $20 million owed to SMS execs in earnouts and and $10 million owed to minority shareholders.
David Grimbley, an analysts with Hoare Govett in London, expects that WPP will earn about $57 million before exceptional items. The company’s stock, however, has been on the rise of late and has currently been trading in the 60 pence range.
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