HAKUHODO BUCKS MERGER TREND IN JAPAN: NO. 2 SHOP, OUT TO BOOST CAPITAL BASE, WILL GO IT ALONE

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[tokyo] As Japanese agency rivals Dentsu, Asatsu-DK and others merge, consolidate and align with international partners, the plans of Japan's second-largest ad agency to keep up are being seen skeptically.

By 2003, Hakuhodo plans to list its shares on the Tokyo Stock Exchange, to boost its capital base in order to bolster overseas projects and gear up for new digital media, said executives familiar with the situation.

But some observers questioned whether Hakuhodo's move would give it an advantage.

"Hakuhodo seems to be at a loss," said advertising consultant Kim Walker, president of Strategic Planners International, Tokyo. "It has made its position clear that it wants to go it alone. In this day and age, it is a dangerous position."

Japan's leading ad agency, Dentsu, is planning a listing on the Tokyo Stock Exchange in 2001.

A spokesman for Hakuhodo, one of Japan's largest privately held companies, denied it had decided to list its shares. But she added: "We have been looking at various ways to increase our capital base."

DENTSU, BURNETT LINK

After about a year, Dentsu is working to complete talks with Leo Burnett Co. that would see the Japanese agency purchase a sizable minority stake in the Chicago-based shop. Dentsu and Burnett already are working together in at least one market: a 50/50 media buying joint venture in South Korea called Phoenix.

Phoenix already has won Procter & Gamble Co.'s media buying account in that country.

In July 1998, Asatsu merged with Dai-Ichi Kikaku to form Asatsu-DK, and WPP Group took a 23.47% stake.

Asatsu-DK has been pushing its global partnership with WPP Group to entice Japanese companies to use it as their agency.

The next agency up for a change in ownership structure may be fourth-ranked Tokyu Agency.

The shop is part of department store and railway operator Tokyu Group, which recently installed more conservative management at the agency after the previous management team failed to locate an international partner.

EXPANDING SHARE

In 1998, Dentsu expanded its market share in Japan to 23% even though billings dropped 0.9% to hit $12.02 billion, according to a survey by the national financial daily Nihon Keizai Shimbun.

Hakuhodo posted a 3.9% drop in billings, which fell to $6.2 billion, but its market share remained at 11.8%, while Asatsu-DK increased its share to 3.5% on billings of $1.82 billion.

Japan's second- and third-tier agencies, with market shares of 2% or less, mostly are unable to compete with these giants. They also are now going through a wave of consolidation.

In December 1997, the financially troubled Saison Group signed a deal with Omnicom Group, New York, to sell it a 20% stake in I&S Corp., the eighth-largest ad agency in Japan.

In late 1998, Omnicom's TBWA Worldwide purchased midsized Nippo. That agency was a part of the Nissan group and the move was seen as a part of a reorganization plan for the financially pressed Japanese automaker.

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