The deal, finalized last week, gave Dentsu a 20% stake in B Com3 -- the merger of Leo Group and MacManus Group. Shortly afterward, Fumio Oshima, managing director of Dentsu International, Tokyo, said the Chicago-based holding company had sufficient coverage to fulfill Dentsu's international aspirations, and that the Japanese giant would need no future acquisitions outside Asia to provide the worldwide coverage it seeks.
B Com3 "is our partner in the United States and Europe. It represents Dentsu," he said. "B Com3 -- it's our company. There is no better alliance we can think of."
Dentsu, the world's No. 1 agency brand with 1998 gross income of $1.8 billion and control of 25% of the Japanese market, has ambitious plans to boost billings outside Japan to 23% by yearend, and to 30% by the end of 2005.
Prior to linking with B Com3 -- which will have 500 operating units in 90 countries -- Dentsu had 104 offices in 28 countries, including DY&R, an Asian joint venture with Young & Rubicam, in which its investment was decreased outside Japan and the U.S. from one-half to one-third as Y&R sought to increase its stake. Dentsu's seven U.S. shops -- Colby Effler & Partners and JSM-plus Communications in Santa Monica, Calif.; DCA Advertising, Lord Group (a Y&R joint venture), Dentsu Communications, Sports Culture Excellence and Renegade Marketing in New York -- stretch across the world's biggest market. But even so, Dentsu's U.S. coverage has been almost imperceptible -- and insufficient to snag a coveted Japanese car account in the U.S.
"The major Japanese clients . . . are so global they just regard the whole world as one market and Japan, for instance, as a tiny part. [Dentsu's midsize U.S. shops were] far from being satisfactory as a main answer to their advertising needs in the U.S.," said Megumi Niimura, Dentsu's Tokyo-based deputy managing director of international business.
Mr. Niimura said the U.S. units now will come under the B Com3 umbrella. He declined to give a time frame for the integration, but said the company wants to move quickly.
It is unclear how those seven shops would be folded into B Com3, but presumably they would be organized based on their specialties. B Com3 has three arms: seven general advertising agencies; three media companies and 14 specialty units.
It is uncertain if Dentsu's Toronto shop, DCC Communications, would be folded into B Com3. And the status of Lord Group, still partly owned by Young & Rubicam, is also unclear.
Morgan Stanley Dean Witter analyst Mike Russell said the B Com3 arrangement may appear to be a two-company merger with investment from a third group, but it's really a three-part union of equals, emphasized by the "3" in the name. He said that to Dentsu, its stake is more than monetary. It signifies the company's global strategy and underscores its ambition to extend its reach beyond Asia.
"This is an important part of their global platform," he said. "It's not just a three-way merger. It's a three-way partnership."
Dentsu will have two seats on the six-person B Com3 board, which includes Chairman Roy Bostock, Vice Chairman Rick Fizdale, CEO Roger Haupt and President-Chief Operating Officer Craig Brown. The Dentsu members are Messrs. Niimura and Oshima.
B Com3 has not said if it will purchase stock in Dentsu when the Japanese company goes public in 2001, nor has it disclosed what portion of the company is owned by officers of MacManus and Leo Group, although that information will surface when the company goes public within 12 to 18 months.
When B Com3 launches its initial public offering, it is estimated that the stock market valuation could reach $3.6 billion to $5.4 billion, or two or three times revenue. B Com3 placed its 1999 gross revenue at $1.93 billion, and billings at $15.7 billion.
When the merger was announced in November 1999, the holding company temporarily known as BDM was expected to become the world's No. 4 ad group after Omnicom Group, Interpublic Group of Cos. and WPP Group, respectively. But in February it was moved down a notch when Havas Advertising bought Snyder Communications, forming an organization with $2.4 billion in gross income.
Mr. Haupt said that while B Com3 won't set out to become one of the world's three largest ad organizations -- the smallest of which is more than double its size -- it does want to round out its services. Three areas in which the company plans to increase its capabilities are direct, database and Internet, which could be beefed up through purchases, he said. He added the company has 10 to 15 purchases working through its pipeline globally, although some are in other disciplines and it is unlikely all will materialize. He said acquisitions would be ramped up in the future, especially after B Com3 gets an infusion of cash following its IPO.
Mr. Haupt also said the company will focus on building the consistent, double-digit growth needed for a successful IPO. He would not be more specific, but estimated about half that could come from new business and half from acquisitions.
"We monitor all of our competition. We know what the hurdles are, and know that we have got to have the programs that will deliver double-digit growth," Mr. Haupt said.
Messrs. Bostock, Haupt and Niimura said clients would benefit from their union because one agency company could shepherd a client through Japan, the world's second-largest consumer ad market, as well as the rest of the world. They said each agency would benefit from the others' knowledge of a region's culture, people and buying habits.
The trio share Procter & Gamble Co. and Coca-Cola Co. as clients, while Leo Group and MacManus have General Motors Corp. responsibilities. Both Leo Group and Dentsu number Philip Morris Cos. among their clients.
"Think of the complexities in Japan of marketing" for a non-Asian agency, Mr. Haupt said, "but here we are, B Com3, sitting inside Japan, partnering with the single-biggest agency in Japan by far, which is giving us access to those resources for our clients."
Contributing: Alice Z. Cuneo.