The disclosures are interesting because WPP has made itself the largest ad agency holding company in the world almost entirely through acquisitions.
CMD was a medical education company whose main client was Pfizer (PFE) when WPP bought it in order to wrap it into its Sudler unit. The price was $18 million plus $47 million in contingency payments. But almost as soon as the buy was done, the business began to unravel, WPP alleges. WPP is currently suing CMD's former owner and CEO, Daniel Salamone, for $18 million it believes it is owed because CMD did not perform up to expectations.
The revenue estimate was off by 47 percent, WPP alleges in its complaint, and its operating profit was off by 71 percent. Salamone also didn't show up for work on a regular basis for six months and failed to disclose that one of its clients was about to commence an audit of the agency, WPP claims. Salamone "lied repeatedly" about the state of his business, a WPP filing in the case claims.
Salamone's lawyers claim WPP knew everything there was to know by the time the deal was done.
The two sides are awaiting a ruling in the case. But the litigation has turned up some morsels of gossip about how thoroughly WPP inspected the agency and its client relationships prior to buying it.
In a deposition, Sorrell was asked whether the due diligence done by his team -- which included Jed Beitler, CEO of Sudler, and Roel Smits, WPP's former senior vp of corporate development -- was good enough:
Q. The totality of the due diligence. Would you consider that to be satisfactory? A. Probably not."This is a stunning admission by WPP's decision maker," Salamone's papers in the suit claim.
Salamone argues that in fact Smits and Goldman had an accurate idea of CMD's condition. On August 27, 2004, months before the deal, Smits sent an email to colleagues noting softness in CMD's results since 2002:
We are now clearly back to a situation where the profit has dropped in 03 AND 04.Later, on Dec, 23, 2004, a week before the deal was to close on Jan. 1, 2005, Goldman was asked in an email about CMD's revenue and profit projections, which didn't seem to make sense. She replied that "the whole thing is fucked up":
(Click to enlarge.) "... ultimately, the sum and substance of WPP's client due diligence was a joke," Salamone says in the suit. His lawyer also argues that WPP's lawyers have played some dirty tricks. A footnote on page 23 of a Salamone brief asking for a partial summary judgment states:
WPP attempted to humiliate Mr. Salamone at his deposition with a deeply personal email exchange with his friend John King.No details were given. Salamone was fired by WPP in March 2006.