True North shareholders will vote on Interpublic's offer tomorrow. Once the deal wraps in late June, Interpublic will incur cash and noncash charges estimated at more than $300 million in connection with the restructuring. The reorganization will follow Interpublic's Chairman-CEO John Dooner's vision of positioning the company as a marketing services conglomerate rather than solely as an ad agency holding company.
Agency executives interviewed for this article cautioned that Mr. Dooner's plan to build a "New Interpublic" is still a work in progress. "It could change by the hour," said one high-placed executive. "There's a lot of stuff that's not resolved," added another. Mr. Dooner last week declined comment on Interpublic's plans, but on June 14, the company said details of the reorganization will be made public by mid-July.
Executives familiar with the restructuring process say Interpublic's diverse units will be divided into three main silos, or "supergroups," tentatively titled the Partnership, WorldGroup and True North. A fourth, nontraditional unit will house entities such as professional training agencies and environmental design shops.
Under the current plan, one executive said, supergroup titles will not contain the names of the company's core agencies-such as McCann-Erickson, Lowe Lintas & Partners or FCB Worldwide-in an effort to protect agency brands from Wall Street criticism. If analysts discuss poor performance of a division, the supergroup name would be used, protecting the agency brands. True North used a similar tactic last year, when its Bozell Group and FCB brands lost out in DaimlerChrysler Corp.'s $2.4 billion account consolidation. TN positioned the loss as a blow to the holding company, not the individual agencies.
How Interpublic is perceived on Wall Street will be of significant consequence. The company last week issued an earnings warning, its second in less than two months. And an ad-stock freefall June 15 took a lot of air out of the True North deal. The stock swap-1.14 shares of Interpublic per True North share-is now worth $1.78 billion, vs. a deal value of $2.05 billion in March, the day before the merger announcement.
Under Interpublic's current plan, the supergroups will be structured as mini holding companies, with a bevy of marketing services as well as strong and weaker agencies in an effort to balance out the company's portfolio, said numerous executives. Each supergroup will contain units that together are balanced in terms of dependence on U.S. vs. international ad spending, and revenue from core advertising vs. marketing services.
The Partnership, for example, will host traditional agencies such as Lowe Lintas & Partners, as well as direct shop DraftWorldwide, media buying arm Initiative Media and sports marketing superpower Octagon. McCann-Erickson Worldwide will be the main ad agency under WorldGroup, while FCB Worldwide will be the anchor under the True North umbrella.
To determine how smaller ad agencies will be distributed among the three supergroups, Interpublic executives are taking into account common clients. However, according to one agency executive, conflicts should not be an issue since agencies will operate independently within their silos. Under the Partnership, Lowe Lintas, Initiative and Draft will all share Verizon Communications and majority-owned unit Verizon Wireless as a client.
"They have to find a way for competitors to co-exist within the system," said one marketer who works with an Interpublic agency. "In order for those small [agencies] to survive, they've got to be able to play in other businesses." At the same time, the silos will not preclude agencies from working with divisions in other supergroups, particularly on global or integrated pitches.
Coping with egos
Another challenge Mr. Dooner faces during the reorganization is dealing with the egos and diverse personalities of his agency heads-most of whom want to retain their independence.
As of last week, Interpublic executives were still trying to determine where non-global agencies with strong leaders-such as Deutsch CEO Donny Deutsch and Hill, Holliday, Connors, Cosmopulos chief Jack Connors-would fit in the reporting structure. Lowe Group founder Frank Lowe is expected to be "more a spiritual leader" of the Partnership and also work on creative, according to one executive.
Day-to-day leadership of the Partnership will fall to current True North Chairman-CEO David Bell and Lowe Lintas Deputy Chairman Michael Sennott. FCB CEO Brendan Ryan is expected to head the True North silo.
Mr. Deutsch is expected to have a broader management role, although the heads of some operations that would fall under his control are balking at reporting to him. "Telling people who used to report to the head of the company that they now report five layers deeps is a tough sell," said an executive at a rival agency company.
Howard Draft, chairman-CEO DraftWorldwide, is apparently getting what he wants. (See related story.) "We're independent. The brand isn't ever going to become Lowe or the Partnership," he said. "I don't see [the realignment] affecting us in any way whatsoever other than we'll have some good people to have relationships with."
Contributing: Laurel Wentz, Cara Beardi, Hillary Chura and Mercedes M. Cardona