BDM to create $16.5 bil goliath in media buying

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Newly formed BDM is set to spin its media operations into a new subsidiary that will be the world's largest media services group with billings of $16.5 billion.

The board of the Leo Group-MacManus Group-Dentsu joint venture is expected to meet this week to discuss the plan. Leo Group's Starcom Worldwide and MacManus' MediaVest Worldwide would come together under a new umbrella holding company that will report directly to the board of tentatively named BDM, as do Leo Group and MacManus. The media company will be headquartered in Chicago, and could be up and running by the end of March, although many operational issues are still being hammered out.

With expected worldwide billings of $16.5 billion in 1999, the media company would be just ahead of McCann-Erickson/ Universal McCann, which had estimated billings of $16.1 billion. Using 1998 figures, the media company would easily be the largest in the U.S., with billings of $5.4 billion.

MediaVest Chairman-CEO Michael Moore is expected to be chairman of the company, while Starcom CEO Jack Klues and Chief Operating Officer Bob Brennan will hold those titles at the new company. MediaVest Exec VP-Chief Operating Officer Kevin Malloy likely will be part of the top management team.

The media executives could not be reached for comment.

"Discussions are still under way on any number of subjects relating to Starcom and MediaVest. Nothing has been agreed to by the BDM board," a BDM spokesman said.

AVOIDING CONFLICTS

Under the subsidiary structure, Starcom and MediaVest offices in the U.S. and the U.K. are expected to continue to operate independently to avoid client conflicts, while their operations will be merged in smaller markets. The two companies already merged their offices in Morocco, for example. And they have conducted joint pitches for shared client Procter & Gamble Co. in China and Greece.

Both companies are moving into the subsidiary from positions of strength. Starcom said last year's estimated worldwide billings were $8.5 billion--a 16% jump from 1998. MediaVest claimed worldwide billings last year of $8 billion, up 81%.

Combined, the media company will be the nation's largest buyer of magazine and network, syndicated and cable TV ads.

Arthur Anderson, principal with Morgan Anderson Consulting in New York, estimated that forming a media holding company could save BDM 10% to 20% in back-office costs, such as administration, equipment and research.

"There are bound to be duplications between two separate media services companies that do the same thing," he said. "Instead of two companies buying the same research and paying twice as much, maybe they'll only buy one set and pay only 60%."

MUCH SPECULATION

Speculation has been rife that the media companies would be brought together in some form since the Leo Group-MacManus-Dentsu venture was announced in the fall.

Craig Sinclair, VP-advertising at Walgreen Co., a Starcom client, said the drugstore chain had no objection to the formation of a media holding company.

"As long as the company continues to be financially sound and will be there tomorrow and continues to have the large buying capacity, which they have, I don't think it makes much difference," he said.

The key sensitivity for the companies--and the reason they avoided an outright merger of their media operations--is to be able to maintain separate brands in major markets to avoid conflicts. In the U.S., for example, Starcom handles Delta Air Lines and McDonald's Corp., while MediaVest buys media for Burger King Corp., Continental Airlines and Trans World Airlines.

"They'll probably try to construct fire walls," Mr. Anderson said, so no intelligence is shared between competing accounts. "We'll see if clients accept those [precautions] as truly working for them."

Copyright February 2000, Crain Communications Inc.

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