Although the parent of Leo Burnett Co. and D'Arcy Masius Benton & Bowles announced in March it postponed its IPO due to the weak economy, it filed an annual report with the Securities and Exchange Commission that gives a peek into a complicated corporate structure and its deal with Dentsu (AA, May 28). The filing shows the company's voting structure will help management retain control of the company's board after an IPO.
"It's a big start," said Alan Gottesman, managing director, West End Consulting, New York, an investment adviser to agencies seeking deals.
Securities laws require companies with 500 or more shareholders to file reports, much as public companies do. Bcom3 now has a head start on its IPO, having done the drafting work on documents that will have to be filed as part of the offering, he said.
Bcom3's equity consists of 15,386,359 Class A shares, 78.26% of the company, which are held by 660 employee shareholders, and another 4,274,248 Class B shares, or 21.74% of equity, held by Dentsu. The Japanese holding company paid $493.2 million in March 2000 for the bulk of its shares and bought another 10,000 for $1.3 million in April 2000.
Dentsu is allowed to sell its shares to institutional investors after March 14, 2002, if Bcom3 has not gone public by then, and has a right to counteroffer merger proposals after March 14, 2002, to March 14, 2005, if there's no IPO. Dentsu also has veto power over CEO appointments, major transactions and other extraordinary deals by Bcom3 as long as it retains a 15% stake or greater.
Bcom3 was formed by the January 2000 merger of the Leo Group-parent of ad agency Burnett and media shop Starcom MediaVest Group and owner of a 49% stake in London shop Bartle Bogle Hegarty-and MacManus Group, the parent of agency DMB&B, media shop MediaVest Worldwide and ad agency Kaplan Thaler Group. Leo Group paid $690 million to acquire MacManus, or about $1.13 billion reduced by $433 million compensation to redeem shares held by MacManus shareholders. The merger converted shares of Leo Group and MacManus Group into shares of Bcom3, which left 9.49 million shares in the hands of Leo Burnett shareholders and 5.98 million shares held by MacManus shareholders. That gave Burnetters a 57.6% majority.
But that majority is merely a detail, since 78.26% of shares are controlled by a voting trust of top managers. The shareholders receive dividends and other distributions from their shares, but they cede all votes to the trust, made up of Burnetters Roger Haupt, chairman-CEO of Bcom3, former Burnett CEO Richard Fizdale and former MacManus executives Craig D. Brown, Bcom3's president and chief operating officer, and former MacManus CEO Roy Bostock. The trustees are also members of the board, along with former Burnetter Christian Kimball, Bcom3's chief administrative officer and chief legal officer, and two directors appointed by Dentsu.
The voting trust will stay in force after the IPO, but new, nonemployee shareholders would get voting rights separate from the voting trust.
Mr. Kimball downplayed the power the voting trust would have post-IPO, adding, "those buying into an IPO are not buying control, they're buying rights to the earnings, to the dividends and to hear things, but not to run things."
If the company does not complete an IPO of at least 10% of its shares by Jan. 31, 2002, Messrs. Bostock and Brown will have their voting power expanded to three votes each on certain matters-such as IPO plans-which will give them a majority in the trust until an IPO is completed.
Despite language that seems to indicate the MacManus side of the voting bloc can force the IPO should the Burnett side of the voting bloc fail to do so, "no one is guaranteeing an IPO," said Mr. Kimball. "It simply says if an issue related to an IPO comes up, those two will have additional votes and if combined, they could swing that vote. But that's not important because the IPO is not a Leo Burnett decision or a MacManus decision in practice."
The 660 Bcom3 shareholders, all employees, have to sell their shares back to the company if they retire or leave the company.
Bcom3 has also approved an incentive plan that will give 850 employees options to acquire 950,000 shares of Class A stock at $130 per share.
Valued at $130 per share, the company's 19.67 million shares represent a market capitalization of $2.56 billion, comparable to True North Communications, which Interpublic Group of Cos. is buying for about $2.35 billion.
Bcom3's pro-forma results-assuming both holding companies had operated as one since Jan. 1, 1999-show revenue rose only 10% in 2000, to $1.89 billion from $1.72 billion in 1999.
Bcom3 posted a net loss of $3.3 million in 2000, a big improvement from a loss of $23.36 million in 1999. The 2000 loss, however, does not include $136.8 million in merger-related charges-$71.9 million to redeem stock and $64.9 million in goodwill-which brought the total loss to $65.61 million.
Its business remains largely concentrated in the U.S. market, which accounted for 52.1% of its 2000 revenue. Europe lags behind, with 28.3%, and the rest of the world-Asia, Pacific, Middle East, Africa and Latin America-makes up less than one-fifth of revenue.
Contributing: Kate MacArthur