Omnicom likely suitor for Aegis

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Omnicom Group is the most likely acquirer of Aegis Group, which owns media buying unit Carat, according to many advertising executives. But John Wren, Omnicom's president-CEO, seems willing to wait before pulling out his checkbook.

In contrast to the struggles of rivals such as Interpublic Group of Cos., Omnicom has been posting strong results, with net income up 19% in the second quarter amid one of the leanest years on record. It has the money, and it appears to have the motivation.

"It's a good option for Omnicom to buy Aegis," said a top media agency executive who requested anonymity. "At least in the U.S., its media offering is not consolidated or concise. I think that they suffer because of it. The acquisition of Aegis would give them a full-service global media agency."

However, in an interview with Advertising Age, Mr. Wren denied his company has approached Aegis. "From a strategic point of view, we have all the pieces we need to be competitive and effective and the rest of it," Mr. Wren said. "There are a few companies under the right circumstances I'd love to have, but there's nothing that we have to have to be competitive."

Omnicom once owned a 9% stake in Aegis in the early '90s, and Bruce Crawford, currently Omnicom's chairman, then its president-CEO, sat on Carat's board. Omnicom sold its stake, which had risen to about 12%, in 1996. "It's a very good company," Mr. Wren said. "I know their management well." And yet, Mr. Wren said the time is not right for an acquisition of the company, and suggested he's waiting and watching to see if the European economy slows down more.

"We don't comment on speculation," said Doug Flynn, Aegis' CEO. But an Aegis insider who requested anonymity indicated that there were no discussions with Omnicom. "We haven't run the white flag up," said the executive. "It's not easy out there, but we're not putting the company up for sale."

Aegis' share price has dropped more than 40% over the past 12 months, joining many other agency stocks in the market decline. The lower trading price appears to make Aegis a likely target for takeover by a flush and stable company such as Omnicom.

Aegis has a market capitalization of $1.6 billion. Omnicom's stock is trading about where it was one year ago, reflecting Omnicom's strong performance amid the worldwide ad slump and giving Omnicom the currency to do some dealing. Omnicom's market cap is $15.7 billion, making a deal for Aegis easily within its reach.

Aegis is the holding company for Carat, Media Marketing Assessment and Market Facts, all of which offer communication services, marketing consultancy and market research. Carat ranks seventh worldwide among media specialists, with billings of $13.3 billion worldwide and $2.6 billion in the U.S., according to Ad Age's revised data (AA, July 23).

Since Tempus, with its CIA Medianetwork, agreed last month to be acquired by Havas Advertising for an estimated $600 million and merged with Media Planning Group, the last big, independent media shop standing is Aegis Group.

SHORT FUSE

"This puts a very short fuse on the acquisition of Aegis," said Steve Farella, CEO of Havas' Media Planning North America. "It's not going to be a long time before somebody comes in and buys the last, large remaining media agency. Keep an eye on it. I don't think it will be us. We're chock-full right now."

Omnicom's competitors, like Havas, have been hard at work reorganizing media services into standalone media shops that have tremendous buying clout and that in one way or another incorporate both buying and planning. The lone exception appears to be Omnicom's OMD, which is primarily a buying shop for sibling agencies.

The media planning departments have stubbornly remained at the agencies, BBDO Worldwide, DDB Worldwide and TBWA Worldwide. Even OMD's buyers have not really left their respective agencies.

"OMD is a very theoretical thing for people like me who actually work in the same office, for the same clients, really doing the same things that we used to," said a media buying executive who requested anonymity. "We just call ourselves OMD."

In addition, since it came to light that OMD was on the hunt for a new worldwide CEO, its leadership has come into question (AA, Oct. 16). Daryl Simm formerly held that position but shifted his responsibilities to CEO of OMG, Omnicom's umbrella unit for its two media networks, OMD and PhD, a group of smaller media shops led by David Pattison. Omnicom interviewed David Verklin, CEO of Carat North America, for the job. Mr. Verklin is a media heavyweight who many observers believe would not have been asked to report to Mr. Simm, a former media director at Procter & Gamble Co. The OMD job remains unfilled. However, if Omnicom were to buy Carat, it would be one way to get Mr. Verklin.

"We haven't announced anything yet," Mr. Wren said of filling the job opening.

OMD's global billings are $18.7 billion, ranking it No. 4 on Ad Age's revised list of media specialists. Adding Aegis' $13.3 billion would push OMD/Carat up to No. 2 behind Interpublic's recently created Magna Global, which negotiates for clients of Interpublic's Initiative Media and Universal McCann and claims $39.5 billion in billings.

NO HIGH-PROFILE WINS

OMD has not won any high profile pieces of business this year, while other shops dominate the new business landscape, such as Carat, which gobbled up Pfizer Warner Lambert, AOL Time Warner's New Line Cinema and Philips Electronics. Philips alone is estimated to be worth $600 million.

This is in addition to significant European wins for Carat last year, including Bayerische Motoren Werke AG, Bertelsmann AG, Carrefour SA and Renault SA, totaling more than $10 billion in new billings last year.

Mr. Wren, meanwhile, vows to change OMD. During Omnicom's second quarter-earnings conference call recently, Mr. Wren referred to OMD as a "work in progress." However, he said that OMD in the U.S. will not take media planners from its sibling agencies.

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