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WPP in Talks to End Patterson Suit; Pact Could Head Off Embarrassment for CEO Sorrell

By Jim Edwards

Updated on: November 5, 2009 / 5:27 PM EST / MoneyWatch

WPP is in talks to settle its suit against Pacific Equity Partners over the acquisition of Australia's famous George Patterson agency, the shop that gave the world the "It's a big ad!" spot for Carlton beer. A settlement would avoid a March 2010 trial, The Australian reports. A deal would extract WPP from several potentially embarrassing scenarios, one of which embroils the global head of Y&R Brands.

The back story: WPP bought The Communications Group for $80 million from Pacific Equity Partners. It sued PEP when two key executives left Patterson and the shop lost clients such as Foster's, National Australia Bank and Cricket Australia. WPP claimed that the two execs, Anthony Heraghty and James McGrath, had been given "secret payments" to induce them to stay with the agency for one year; had WPP known of the payments -- and the consequent likelihood the pair would leave when the year was up -- it would have paid much less, WPP claims. WPP's Y&R Brands is seeking $10 million AUD in damages.

A confidential settlement would have some advantages for WPP. First, it would mean that Y&R Advertising chief Hamish McLennan (pictured) would not be forced onto the stand to testify under oath about what he knew about the alleged "secret payments." PEP claims McLennan was informed of the payments in a phonecall prior to the acquisition; McLennan says PEP's lawyers behaved disingenuously regarding disclosure of the payments.

Second, it would mean that WPP could extract itself from the embarrassing position of suing its own client. After leaving George Patterson Y&R, Heraghty joined Foster's beer, a WPP client. Foster's then axed Y&R from its account.

Third, it would mean that WPP's lawyers could avoid another defeat based on stakes the company has taken in smaller agencies. WPP recently lost a lawsuit in which it accused Spot Runner of selling stock without telling WPP, that loss turned on WPP's lawyers' failure to closely read an email that Spot Runner sent to WPP.

Bonus points: If you spotted that The Australian referred to McLennan as WPP CEO Martin Sorrell's "Australian apprentice."