NEW YORK (AdAge.com) -- Interpublic Group of Cos. is about to pull the trigger on a merger of its agencies Lowe Worldwide and Deutsch that will do away with the Lowe brand in the U.S., according to people familiar with the matter.
The move, which appeared a fait accompli with the arrival yesterday of Lowe Worldwide Chairman Tony Wright in New York, means the U.S. operation of global network Lowe is set to fold into Deutsch, a shop that operates in North America via offices in New York and California. The merger will lead to the departure of Lowe New York's chairman-chief creative officer, Mark Wnek, who landed stateside in 2005 with the mandate to turn around the stumbling operation, the people said. Mr. Wnek may stay through the transition, these executives said.
Mr. Wnek and representatives for Interpublic and the agencies declined to comment or didn't return calls.
Related Story:Interpublic Details New Leadership for Combined Deutsch, Lowe
Linda Sawyer Will Oversee Operations, Mark Wnek to Get New Role, Val DiFebo to Run N.Y. Office
Discussions about joining the two agency brands have been held on and off for years.
Interpublic insiders cited the recession as the primary reason the scenario went from a rumor to reality as Interpublic seeks to slash overhead. In the last quarter, it saw profits sink a staggering 70% to $21 million.
There's little doubt cost-savings and added efficiency will be an outcome of putting under the same roof two traditional agencies with few client conflicts and a big shared one in Johnson & Johnson. In 2008, J&J ranked as Interpublic's second largest client. Said one former Interpublic executive: "It kind of makes sense on paper. IPG is trying to make the Deutsch brand stronger globally, and give the Lowe, New York, offering a big kick in the butt."
The big question is whether a joint Deutsch and Lowe will work the way clients want and need it to.
Like any merger, this one is destined to be disruptive, thanks to a consolidation of real estate, management changes and other factors.
Lowe knows this drill better than Deutsch does. Viewed in industry circles as the poster child for unsuccessful ad agency mergers, Lowe has been locked in an M&A cycle for more than 15 years: It bought Scali McCabe Sloves in 1993, and six years later merged with Ammirati Puris Lintas, then consumed an ailing Bozell in 2003.
While parent Interpublic has laid low of late -- thanks in part to a period of regulatory turmoil brought on by sloppy accounting practices -- its past is rife with mega-mergers and acquisition binges. This last merger come three years after Draft and Foote Cone & Belding were glued together to create DraftFCB, which, for all its issues, had less potential for cultural conflict than does the marriage of London-based Lowe and Big Apple-born Deutsch.
Clash of cultures
Lowe was founded in the early '80s by legendary British adman Frank Lowe, who left the agency in 2003 only to reemerge with a new shop and poach Lowe's lucrative Tesco account as its founding client. As a brand, Lowe is regarded as creatively strong, but unable to form a consistent identity after being combined with other agencies time and again.
Mix that with 40-year-old agency Deutsch, which was founded by David Deutsch and later run by David's TV-personality son Donny Deutsch before he handed the reins to Linda Sawyer. It sold to Interpublic in late 2000 but has still a maintained brash, in-your-face style.
For Lowe the U.S. takeover by Deutsch comes just as the longtime trouble spot in Interpublic's agency portfolio returned to profitability in 2008 and finally saw some not-so-shabby client wins with brands like Outback Steakhouse. Lowe globally shook up its management team this year, naming former Fallon exec Michael Wall to replace Steve Gatfield as global CEO and reappointing Matthew Bull as global chief creative officer.
For Deutsch the deal means extending its reach overseas into markets where Lowe has a presence, such as Bangkok, Madrid and India, the latter being Lowe's biggest outpost where it has five offices. With that, of course, comes new challenges: for starters the ones that have been plaguing Lowe on the other side of the Atlantic.
Said Mr. Wright to Ad Age earlier this year: "London is not doing well at a local level, although it is still important as a worldwide center. The cultural issues that dogged the original merger have never been resolved."
Staffing, VW review
The Lowe Worldwide network last year saw a total of $572 million in revenue, according to Ad Age's DataCenter. That figure includes the ad agency and its health-care unit, Lowe Healthcare Worldwide.
Lowe's U.S. ad agency operations accounted for a small chunk of that amount at about $40 million in revenue in the U.S. and a little more than 600 employees. Deutsch had 2008 revenue of $148 million, and nearly 900 staffers across two offices.
Deutsch's accounts in its Los Angeles office include handset maker HTC, Dr Pepper and DirecTV, while Deutsch, New York, handles J&J's Tylenol brand, Kodak and Zipcar. Lowe, New York, also works on J&J brands, as well as Zicam and Sharp consumer electronics.
It remains to be seen whether the news of the merger will affect Deutsch's standing in one of the hottest pitches of the year; the agency's West Coast office is set to make final presentations down in Virginia next week in Volkswagen's ad agency review. Meanwhile, former General Motors agency Lowe has been angling to be considered for GM's Cadillac brand, which came loose from longtime agency Modernista last week.