Mike Connaghan tries to dispel STW staff fears of job losses and mergers with memo
Connaghan
STW CEO Mike Connaghan has moved to hose down staff fears about their future in the wake of the merger with WPP, but refused to rule out job cuts and agency mergers.
In an all staff memo obtained by Mumbrella, Connaghan has told staff the move – revealed by Mumbrella last week – will create greater opportunities for all in a business that has doubled in size and created international links overnight.
WPP will take a 61 per cent stake in STW with the two group’s operations merging in Australia under Connaghan’s leadership. WPP will pay a 30 per cent premium to gain control of STW.
In the memo Connaghan repeats a lot of the positive messages about the merger that he gave in a presentation to analysts yesterday.
Addressing the question of job possible job cuts on the memo, Connaghan said they had not been a feature of the discussions leading up to the deal, but side-stepped the issues saying people came and went from STW businesses all the time and it was a “fact of life”.
“A merger like this always results in job losses, is my job safe,” the memo says.
“As part of the in depth planning for this deal to happen, there has never been any discussion about job cuts! Depending on how your individual company is performing, you know, sometimes people come, sometimes people go. It is a fact of life, particularly our industry. What I would say is that on balance across our group, right now we are hiring more people! We are doing well. We need to see this as a growth phase for all of us.”
He also said that he was open to the possibility of mergers with WPP businesses “if it made sense”.
“If a company is performing well, growing with happy people and happy clients we would be crazy to change anything. The idea behind this merger is to join two leading organisations to create an even stronger entity. We aren’t out to merge or cut down, we want to grow and expand.”
After Sir Martin Sorrell told Mumbrella he did not want the newly merged STW and WPP entities to pay any further attention to Asia and concentrate on Australian and New Zealand, Connaghan was also forced to allay the concerns of staff in international offices.
“We have people in fantastic businesses in Toronto, Singapore, New York, Vietnam, Malaysia, London, Thailand, Indonesia even Moscow. All these businesses will continue exactly as they are as part of our group. We believe we have established a fantastic business in South East Asia, and while we won’t look to be acquiring businesses we certainly will continue to support those businesses growth aspirations. We will also support local ANZ companies following clients and revenue opportunities offshore.”
Finally he addressed his own role in the business and who he would report to, saying he wanted STW’s companies to continue to be independent.
“We will still be a public company in Australia and as such I will report to an independent board of directors. WPP will be the majority shareholder so ultimately Sir Martin Sorrell is the boss,” he said.
“I was around when Singleton merged with Ogilvy. That was much closer to home than this deal. It directly affected the actual company we worked for. I was young (very) and nervous. I shouldn’t have been. It was fantastic! We were bigger, stronger and wonderful opportunities flowed from our combined strength. The same should be the case in this merger.”
Simon Canning
Related content:
- Boiling the frog: how Sorrell stalked Singo’s prize for a decade and a half
- WPP boss Sir Martin Sorrell says new STW/WPP entity will be $1bn business, but not with Asia
- WPP takes controlling 61 per cent share in STW creating Australia’s biggest marketing group
- STW Communications enters trading halt with WPP poised to finally complete takeover
The full text of the memo:
Dear All,
Clearly there are lots of questions/theories arising from the announcement yesterday that STW Group would merge with the WPP business in Australia and New Zealand.
I was keen to clarify some of the detail around the merger, answer some of your questions and hopefully give you some more information about this really exciting announcement.
Firstly, let me say I am very happy this deal has happened. It doubles our size, doubles our opportunity and doubles your prospects for growth and career enhancement.
What has happened?
The proposal is effectively to merge STW and WPP in Australia and New Zealand. This will ultimately mean that we are twice as big as we are now. To name just a few, we are talking about Y&R, Millward Brown, VML, Hill & Knowlton, Mediacom, Grey, TNS, Wunderman, MEC etc. All of these companies, just as the STW companies currently do, will report to me as the CEO of the combined group. As with our existing partnerships, for example Ogilvy or Added Value, those Global WPP companies will have a reporting line and retain a strong connection with their global network.
Will my company change?
As an STW group company there will be no change. There will certainly, I believe be bigger and better opportunities for collaboration, knowledge exchange and learning and development.
What about me?
It’s natural that with such massive change to our organisation, our people may be worried about what this all means for us as individuals. I believe this is an incredible opportunity. One of the benefits of being part of a group like STW is the opportunity to work with, share with, train with and learn from other group companies. This deal creates double the opportunity. Double the scale. Double the revenue and clients. Double the training and tools we can access.
It also gives us much clearer sight of what is happening on the world stage. WPP is a global player, which affords it the ability to invest in data, tech and innovation on a scale that STW could never compete with. Our world is moving fast forward, so having access to global insights and tools is only going to enhance your own business and help you learn and grow.
We compete with a lot of these companies? How will that work? Will we be forced to merge?
The way the STW Group currently operates, we have many companies competing with each other day in day out. Just last week there was a major pitch where two STW Group companies were the final two in the fight. We won! Therein lies the point of a diversified group of companies like STW and now WPP. Competition is natural, we must deal with client conflict and we have multiple brands in every sector of our business. Competition should make us stronger. Hopefully because we are all from the same group, it also affords us opportunities to share and certainly for you, should provide you with greater opportunities for career development.
What about client conflicts?
Client conflict is a fact of life in our industry. The deal should mean no change to the way we deal with conflict today.
What happens and when?
We will remain a listed company on the Australian Stock Exchange – but a much bigger one.
WPP will own 60% of the stock and local shareholders the rest. If you own STW shares you will still be paid your dividends as you are today.
The merger will not be official until April, once all the regulatory boxes have been ticked.
A merger like this always results in job losses, is my job safe?
As part of the in depth planning for this deal to happen, there has never been any discussion about job cuts! Depending on how your individual company is performing, you know, sometimes people come, sometimes people go. It is a fact of life, particularly our industry. What I would say is that on balance across our group, right now we are hiring more people! We are doing well. We need to see this as a growth phase for all of us.
Will my company be merged with another?
My view on this is very simple. If it made sense, and a company was made stronger by combining of course we would investigate. However organisational neatness is not something I believe in itself creates value. If a company is performing well, growing with happy people and happy clients we would be crazy to change anything. The idea behind this merger is to join two leading organisations to create an even stronger entity. We aren’t out to merge or cut down, we want to grow and expand.
What if my office is outside of Australia and New Zealand?
We have people in fantastic businesses in Toronto, Singapore, New York, Vietnam, Malaysia, London, Thailand, Indonesia even Moscow. All these businesses will continue exactly as they are as part of our group. We believe we have established a fantastic business in South East Asia, and while we won’t look to be acquiring businesses we certainly will continue to support those businesses growth aspirations. We will also support local ANZ companies following clients and revenue opportunities offshore. We have a couple of very exciting opportunities our companies are pursuing right now. Now we have WPP as a major shareholder, our opportunities to partner with WPP outside of ANZ should be even greater.
Who will your boss be Mike?
We will still be a public company in Australia and as such I will report to an independent board of directors. WPP will be the majority shareholder so ultimately Sir Martin Sorrell is the boss.
As far as you are concerned, you all have a boss within your own company. Ask them, I don’t behave like their boss, I need each of the companies to lead themselves and continue to grow and develop their own business and people.
That is the way I intend to keep running the group.
I was around when Singleton merged with Ogilvy. That was much closer to home than this deal. It directly affected the actual company we worked for. I was young (very) and nervous. I shouldn’t have been. It was fantastic! We were bigger, stronger and wonderful opportunities flowed from our combined strength. The same should be the case in this merger.
I am always open to clarify any questions you may have. Just shout. I hope you all have a great Chrissy and New Year.
Mike
Anyone who has worked through similar situations (particularly involving WPP) knows that Mike’s comments have been heard again and again only to be followed by major job losses. His words are a virtual cut & paste of every merger I’ve been through. No group buys another to keep things the same. What would be the point? Merge, purge, slash costs & staff and ramp up performance targets for those left behind is just a business reality. I feel sorry for those about to encounter it all but it will happen to them more than once in this industry. Good luck to everyone!
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Thanks for all this coverage, Simon.
Any chance of an ‘explain it to me like I’m five’ for us non-industry folk to comes to grips with it all?
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More comments please. I need to know how to feel about this.
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Fred and Confused,
most of the changes will be felt in the senior management ranks with a change in reporting (information, style and frequency) and more specific and likely agressive growth targets (this is what many people refer to when being negative about WPP). in all liklihood pending on your current exec team this may or may not filiter down to you, good executes protect and insulate staff allowing them to get on with their job, bad executes will poorly delegate and place pressure on staff for short term results and they themselves loss focus on ensuring a mid to long term plan that will ultimately drive both.
There should also be some upside though as many companies have flourished under WPP so it should not been seen as all doom and gloom, and as Mike highlighted international and network opportunities are a reality.
My advice is change is always good for learning, even bad expereinces can you teach you valuable lesson. Be open, be prepared and willing to accept and adopt change, dont pre judge and give it sometime.
Mike is many things but one of his outstanding attributes is that he is straight shooter and a no bullshitter, it should be great ride so run with it.
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You wouldn’t spend all this money merging this large group of companies into a revised asx listed company just to keep the status quo. Clearly there is value seen in merging the group, otherwise the deal would have fallen over.
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ASX savvy is correct. And to quote p.17 of STW’s own announcement – http://www.asx.com.au/asxpdf/2.....y5jpr6.pdf
“Operating Efficiencies – Local management oversight with acute margin focus and driving integration of services across the group
Total estimated cost savings $7.9m”
“Acute margin focus” sums up 2016 for employees.
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As someone who has been through it with WPP, they will demand 20% efficiency improvement across the board, multiple mergers ( which DOES mean redundancies at all levels ), etc. The reason for merging is simply efficiencies, it is what the market wants to see, just like any business. This whole spiel about growth and opportunity is the usual facade that is put up. For the Managing Directors in the group, expect comp ratios to be less than 50.
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$2.8 million savings in IT and shared services over 3 years, per the ASX document.
There may be some challenges ahead for Finance and IT staff.
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I see it differently.
All this, ‘WPP didn’t buy it just to let it stay the same, they bought it to make changes’, spirited words conjuring up images of a Cowboy played by Will Ferrell riding in with his WPP cowboy hat, screaming into each office as he breaks through the doors ‘Im here to f**k s**t up’ is just rhetoric. It is baseless.
WPP bought this for one reason, and one reason only: it makes sense financially. For years everyone has known this was inevitable. It’s just been a matter of finding the right time for both parties. What goes into that, the ‘right time’? Share price, premiums, the projection for share price over next year, what the global market is doing (note, WPP has a lot more to consider than just STW). I’m sure waiting to see the Omnicom + Publicis merger happen, and then falling out, affected the time line of such a big acquisition.
So no, WPP didn’t buy in just to make sweeping changes. They bought in because it made sense to their global business.
And all perceived changes, cut downs, ‘efficiencies’ if you will, coming to fruition will come down to if it’s good for business. And all in all, STW is not doing terrible, so WPP won’t change things for the sake of change.
And with STW coming off a bad year, and MC saying ‘it’s not good enough’, share prices not being what they once where, change were coming anyway. I think there’s an argument that changes coming from WWP-merger won’t be as full on if the merger HADN’T happened. At least in the short term, as WPP needs to assess everything before making drastic changes, whereas an STW fiefdom knows what needs changing and could strike straight away. (This is an argument that could be made, not one I necessarily believe, but is as valid as all the ‘run for your lives’ comments).
I haven’t been MC’s biggest supporter in the past, but I think his email is honest, straight forward and doesn’t dodge anything. Cuts haven’t been mentioned in the deal, why would they? That’s such a short term issue, and not really a tabling point when discussing such a giant merger.
And like he insinuated, if your company is performing, you should be ok. WPP won’t want to disrupt any products doing well, because it’s now their money. ‘Dont fix won’t ain’t broke’ is a truism for a reason. And those who arn’t performing, I believe they were going to face changes/mergers/realignments from STW anyway. We know STW is a little embarrassed and looking to make changes. I think they have stalled on that a bit because of these negotiations.
IMHO in 3 years time, we’ll look back and see there wasn’t such a drastic change to most. There will be a fe mergers along with job cuts, but that won’t affect many people. These statements, ‘expect 20% cuts throughout the entire STW portfolio’ is rhetoric and baseless. I think some businesses will actually grow.
The biggest impact in 3 years time, IMHO, is putting a half to Asian expansion. Which again, won’t affect a lot of people currently.
What about those outside ANZ right now, in STW companies? If we’re being honest, I don’t think even MC knows right now how it’ll all turn out. But if they’re doing well individually, no need to kill them off. WPP just doesn’t need to cannibalize itself in what is a big focus for them atm. That’s the only reason Sir MS use to criticize STW for doing it in the first place, and a big point to coming in and buying up STW now.
Outside of that, IMHO, 95% chance if you’re in an STW company, in ANZ, beneath the management, there will be no change to your work life anytime soon.
*NOTE I have no connection to STW or WPP.
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What’s sad is just how good Aussies have now sold another industry overseas
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is it possible that this could actually mean that MC and STW actually get more power out of this…end up running WPP in this part of the world?
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Time for a reality check here. There are two primary reasons why STW got to the point where they were, frankly, bought out.
One – STW purchased all kinds of agency outfits just to grow scale. That business model was already dysfunctional – read Photon. Two – STW’s timing of Asian agency/client business acquisition was far too late, cost too much and contributed greatly to STW’s financial plight. Along with massive overheads spent on trying to prop up 80 odd unprofitable rats and mice outfits here.
Sir Martin was smart enough to see what was happening, bided his time and then got it right. The rest is window dressing.
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