PEP’s row with advertising group WPP continues

The Sydney-based firm has allegedly breached a settlement pertaining to undisclosed payments it made to two ex-executives of former portfolio company The Communications Group.

Pacific Equity Partners (PEP) has settled a dispute with London-based advertising group WPP, which sued the firm for A$10 million ($9 million; €6 million) in late 2006 on an issue relating to its purchase of PEP's stake in The Communications Group.

WPP's chief executive told The Australian newspaper, however, that more legal action would be initiated as the firm had breached the settlement.

PEP did not return calls for comment and WPP would not comment on pending legal action.

WPP in August 2005 purchased the private equity firm's 70 percent stake in Australian advertising company The Communications Group, owner of agency George Pattison Y&R.

WPP would not have paid as much for the outstanding stake if it had known about the agreements beforehand.

WPP spokeswoman

It paid A$80 million in cash for the stake, but said it wouldn't have paid that price had it known the private equity firm made undislcosed payments of A$1.5 million to Anthony Heraghty and James McGrath, the former managing director and creative director of George Pattison Y&R respectively, a WPP spokeswoman said. The payments were made to ensure the executives remained with the company for the 12 months following the sale.

“WPP would not have paid as much for the outstanding stake if it had known about the agreements beforehand,” the spokeswoman said.

Heraghty and McGrath have issued an unreserved apology to WPP and Y&R chief executive Hamish McLennan, who “made offers of ongoing employment” within Y&R thorough 2005 and 2006, unaware of the agreements both had with PEP. “In retrospect, we could have taken steps to more clearly enunciate our intentions to Y&R and Mr McLennan,” they said.

PEP maintains that it “acted in good faith and on the basis of Clayton Utz’s legal advice that the agreements did not need to be disclosed to WPP,” according to the joint statement with Heraghty and McGrath.

In September 2006, Heraghty left TCG for a senior marketing position at Australian beer group Foster’s while McGrath joined communications group Clemenger BBDO in a senior creative position. Following their departures, WPP’s Melbourne office lost high-profile clients including Cricket Australia, Foster’s and National Australia Bank, the latter two to Clemenger BBDO.