In Merger, Dentsu and Aegis Must Preserve Agency Brands to Avoid Client Conflicts

GM Reassured That 'There Will Be No Change' in Level of Service Post-Acquisition

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In announcing its nearly $5 billion bid for Aegis, Japanese ad giant Dentsu was very careful to note that it's not planning to eliminate any of the agency brands that sit under the companies.

It's a move that makes sense from the perspective of being able to pitch different services to clients, such as digital, media or traditional advertising. But it's also necessary in order to steer clear of client conflicts -- something that has yet to be totally worked through by the two companies.

In January, Aegis' Carat won the pitch for General Motors' consolidated global media account http://adage.com/article/agency-news/gm-parks-3-billion-media-account-aegis-carat/231699/, making the automaker one of the most important clients for the company. Meanwhile Dentsu for years has had a relationship with Toyota in practically every part of the world.

Said General Motors in a statement to Ad Age : "The management team of Aegis and Carat have reassured us that there will be no change in the outstanding level of service that they provide, and we're confident that they will continue to deliver the value that we expect." Toyota didn't respond to a request for comment by press time.

To ensure that level of service they are promising, Dentsu and Aegis will need to preserve certain firewalls. "We're still going to be operating separate lines of business and don't intend to mix those," said Dentsu Network CEO Tim Andree. "The brands and the organizational structure already exist and [the idea is ] to keep them separate. As we bring [Dentsu and Aegis] together we're going to be very mindful about what's good for our clients."

Agency brands under Dentsu include McGarryBowen, 360i and Firstborn, while at Aegis, they include Carat, Isobar, IProspect and Posterscope.

When it comes to rival automakers working with agencies that are part of the same holding company, there's definitely some precedent. For example, over at Omnicom Group, its agencies handle both General Motors, Nissan and Mercedes, while at Interpublic, its agencies handle business for Volkswagen , General Motors, and Hyundai. And in some senses, the trend towards agency consolidation means that marketers will be forced to get more flexible about conflict issues.

Mr. Andree stressed that although it's possible the melding of Dentsu and Aegis may pose certain conflict situations, "there's far more complement than there is potential conflict." He declined to identify which clients currently work with both Dentsu and Aegis, but according to Ad Age research and industry sources, it's appears they share a pretty long list of of multinational clients, including: Procter & Gamble, Pfizer, Kraft, Johnson& Johnson, Disney, Diageo, Coca-Cola and Adidas.

Even competitors of the two companies are conceding that it's a pretty smart deal.

"Dentsu have paid a big premium for Aegis, but it's arguably a good marriage for both sides," said Steve King, global CEOof Publicis Groupe's Zenith Optimedia, in an email. "Aegis gets max return for their shareholders (especially at a time of massive global economic uncertainty) and Dentsu acquires a true worldwide network."

For all that its appearances as a good fit, the deal that took place this week may never have happened had earlier deal scenarios floated over the past decade panned out.

For one thing, back in 2004, when Havas was struggling, Vincent Bollore -- the French businessman with a knack for taking tarnished companies, shining them up and flipping them for huge profits -- said he would inject more capital into the group. At the time, he also believed that in order to really grow Havas and make it successful, he'd need to combine it with Aegis. That prompted years of talk about a marriage between Havas and Aegis.

But as Havas restructured and improved its performance, the motivations for such a deal fizzled out.

Then there's the media-agency purchase that Dentsu is rumored to have aggressively pursued with Horizon. Horizon is the largest independent media agency in the U.S. -- a top growth market for Dentsu. The shop does close to $4 billion in billings, and founder Bill Koenigsberg, who was Ad Age 's agency executive of the year, has become one of the industry's most high-profile advocates for change and growth.

So why didn't the mutual expansion goals -- Dentsu was looking for a major U.S. player and Horizon continues to chase global business -- translate to a deal?

Mr. Koenigsberg would not comment on the rumor that he had been in discussion with Dentsu, but he talked to Ad Age about why he has not yet sold the company.

"We're the largest independent agency in the world now, with more global ambitions. I feel there are significant opportunities in the marketplace that continue to build the value of the Horizon brand, domestically and internationally. For the stars to align in the right way, I'd need to find the perfect strategic fit. It's not just about the money. We continue to look at options for the best opportunities for global expansion."

The firm, which partners with global shops through its Columbus network of 40 agencies, recently won some of its first truly global client relationships, including United Airlines, which works with Dentsu shop McGarryBowen; Siemens; and Buddy Media, among others.

Mr. Koenigsberg says he's bullish on the latest big deal in adland. "It was a brilliant move by Dentsu. It's a great organization with a global footprint, and [the deal] accelerates it into the digital world in a bigger global way. Tim has made some very smart acquisitions, and I put this in the same camp."

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Contributing: Laurel Wentz