With more than 400 agencies around the world to juggle, Sir Martin Sorrell’s international advertising group WPP is well accustomed to dealing with potential conflicts between rival brands and clients.
But rarely has Sir Martin had to directly intervene, as he did last weekend, to keep one of his biggest and most important customers happy.
WPP’s financial PR agency Finsbury and founder Roland Rudd had fallen into a messy conflict of interest over what would have been the second biggest takeover deal of all time, raising fresh questions about the ethics and relationships in the growing communications industry.
With Unilever — the second largest advertiser in the world and one of WPP’s largest spenders — fighting off a hostile $143bn takeover bid from Kraft Heinz, Mr Rudd was hired on Friday to advise the US food group.
But according to people close to the deal, which collapsed on Sunday night, Finsbury was removed from the Kraft advisory line-up after Unilever chief executive Paul Polman discovered the WPP-owned agency was acting on the other side to his company.
An email exchange between Sir Martin and Mr Polman on Saturday night left little ambiguity, people familiar with the aborted deal said. Finsbury was replaced by rival financial PR firm FTI Consulting, while Tulchan acted for Unilever.
“I just don’t think anyone [at Finsbury] thought about the Unilever clash and because it all happened so quickly Martin probably didn’t know what Roland was doing,” says one PR industry executive.
The episode highlighted the challenges PR agencies face when they are owned by multinational holding companies with such diverse interests from advertising to strategic consultancy.
“This is a deviation that is unacceptable in our world,” the outgoing Publicis chief executive Maurice Lévy told Bloomberg TV on Wednesday. “When it comes to operations like a takeover, we have to be extremely clear to support a longtime client.”
In the end that was exactly what Sir Martin did. But he also followed the money.
The fees on offer for PR advisory firms for a big takeover deal can run to many millions of pounds. For example, Brunswick, the London-based PR company run by Sir Alan Parker, earned $20m from AB InBev’s £79bn takeover of SABMiller last year.
But they pale in comparison to the advertising spend by Unilever’s global brands such as Dove and Ben & Jerry’s ice cream. Finsbury was unlikely to earn enough to risk jeopardising Unilever’s long standing relationship with the company’s advertising agencies, according to one PR executive.
“When the chief executive of one of your biggest clients phones up and asks you to get out the way, you generally don’t tell them where to go,” the executive adds.
Finsbury, which declined to comment for this article, was bought by WPP in 2001 as the world’s biggest advertising and marketing group sought to diversify beyond its core business. It also owns Ogilvy Public Relations and Buchanan Communications.
The cut throat industry has seen rapid growth and consolidation in recent years as PR groups have responded to the increasingly global needs of corporate clients.
And yet PR executives told the FT such conflicts were unusual for Mr Rudd and his team. “I genuinely think this was a one off,” said a person close to the aborted deal. “The model has always been that you have multiple agencies working with multiple clients.”
Takeover deals almost always involve a PR agency on each side, with companies only able to choose from a relatively small pool of financial advisers of sufficient scale. It is not surprising for a company to find a PR once on its own books now working for a rival or even potential acquirer.
But even PR agencies which are not owned by a multinational media conglomerate face daily dilemmas when making sure they work with the right client.
To illustrate the ever shifting loyalties in a fiercely competitive market, Finsbury acted for Cadbury in its doomed defence against Kraft’s 2010 takeover.
Some rivals are less worried about having the same PR advisers. When Finsbury took on Marks and Spencer four years ago, the company had to get approval from its existing British retail client J Sainsbury.
Other companies do care. In 2012 Bell Pottinger’s public affairs division had to drop its work for Kellogg’s after another part of the company was hired by Kraft’s global snacks business, Mondelez.
Rachel Fellows, Kellogg’s UK corporate affairs director, told industry magazine PR Week at the time that the decision followed a “review of our internal structure”.
Unlike investment banks and legal firms, which run strict conflict of interest checks before agreeing to take on clients, the rules in the PR industry are less rigid.
“Conflicts are in the eye of the companies involved,” says one senior PR executive.
Any advisers acting on a merger or acquisition in the UK are regulated by the Takeover Panel, which sets strict rules on what each of the parties can say publicly and when. But the panel says nothing about who PR agencies can and can’t act for in deals.
The Chartered Institute for Public Relations does set down some principles on transparency and conflict in its code of conduct, urging members to clearly disclose any conflicts in writing “as soon as they arise”.
But the sanctions are hardly severe and PR executives said that in practice each firm was left to follow its own internal rules on conflicts of interest.
Bob Willott, an accountant who edits a marketing and financial newsletter for the PR industry, said: “I don’t think that the degree of ethics and conduct that is commonplace in the legal or investment banking industry has yet permeated public relations. This is a clear case for the PR industry to examine how realistic its code of conduct is.”
Further coverage on Kraft Heinz’s approach for Unilever
John Gapper: Warren Buffett needs a new recipe for investing
FT View: Unilever was a deal too far for Kraft Heinz
Lombard: Who wrote Kraft’s clumsy chat-up lines?
Big Read: The $143bn flop: How Buffett and 3G lost Unilever
Lex: An alternative pivot
News: Kraft Heinz drops pursuit of Unilever
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