Publicis' Levy sees Fallon as global network

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[paris] Publicis Group President-CEO Maurice Levy's long-thwarted ambition to become a key player on the U.S. scene comes a big step closer to reality with the estimated $130 million acquisition of Fallon McElligott.

"Our main goal is to attract the large advertisers with global accounts who have not been considering Publicis due to the fact that our position was weak in the United States," said Mr. Levy.

Minneapolis-based Fallon marks Publicis' third major acquisition in less than two years. In May 1998, it acquired Hal Riney & Partners, San Francisco, following that up with the purchase of marketing services company Frankel, Chicago, eight months later.

BURRELL STAKE

In addition, Mr. Levy's agency took a 49% stake in multicultural agency Burrell Communications Group, Chicago, in June 1999.

The holding company also hopes to bring its Optimedia buying unit to the U.S. soon and will use Fallon as the launching pad for a new international network. Mr. Levy plans to invest $30 million to $50 million in the new network, slated to roll out in 10 to 12 markets over the next three years. Fallon -- under Chairman Pat Fallon's management control -- will be its core.

BRAZIL EXPANSION

The new network, said Mr. Levy, will be "completely structured for the Internet age" and focus in particular on the Web needs of major advertisers, through the acquisition of "small, like-minded" agencies. A city in Brazil is likely to be home to the first new office of the Fallon network, adding to its existing Minneapolis, New York and London bases.

"We believe that Fallon is a superb brand," said Mr. Levy. "It has crossed the borders. It is respected and recognized throughout the world. The name [of the new network] will be Fallon, the spirit will be Fallon, and everything will be Fallon."

Separate networks are a good way to deal with account conflicts. Publicis & Hal Riney handles General Motors Corp.'s Saturn, for example, while Fallon works for BMW of North America and Publicis handles Renault globally.

"We naturally spoke to our client [Renault] about the merger, and it was understood that advertising companies operate competing networks," said Mr. Levy. "We will handle the accounts separately, we will handle competing accounts and we will even compete for accounts."

The Fallon acquisition comes as a vindication of sorts for Mr. Levy. His unwelcome offer to merge with True North Communications was rebuffed and, in 1997, he lost a nasty court battle to block TN's purchase of Bozell.

Even without TN, he has managed to build up Publicis' U.S. base. Mr. Levy said the two latest purchases will more than double Publicis' net income in the U.S. to more than $400 million.

This year, 35% of Publicis' billings will come from North America, up from 24% in 1998, Mr. Levy said.

THREE FOCUS POINTS

The executive is focusing Publicis' U.S. growth strategy on three areas: ad agencies, building up Optimedia and expanding Publicis Dialog, an integrated marketing agency.

Other than BMW, Fallon's client roster includes Holiday Inn, VF Corp.'s Lee jeans, MTV Networks, Ralston Purina Co., Starbucks Coffee Co., Electronic Data Systems Corp. and United Airlines. The agency was proudly independent and decided to do a deal with Publicis because the agreement allows it to operate autonomously.

The new Fallon network also points up Publicis' desire to position itself as a key Internet advertising player. "Fallon is already an agency totally dedicated and organized for the Internet age," said Mr. Levy, citing its Duffy Design & Interactive division. Last year, the entire Publicis Group recorded about $50 million in Net business, he said, noting that the holding company will announce a major Internet-related development in March.

Publicis & Hal Riney CEO Hal Riney termed the Fallon deal "a fine acquisition," adding, "We've always encouraged Maurice to acquire somebody else."

Contributing: Alice Z. Cuneo, Hillary Chura, Laurel Wentz

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