AS RANKS THIN, VALUE OF INDEPENDENTS RISES; AUTONOMY: WALL STREET SENDS AGENCY STOCKS SOARING

By Published on .

As another wave of merger mania swept over Madison Avenue, the remaining independent ad agencies steadfastly vowed to maintain their autonomy. At least for now.

In the wake of the latest mega-merger of MacManus Group and Leo Group -- and lots of industry gossip -- most of the remaining companies denied any sellout plans of their own.

Doner, Southfield, Mich., was said to be wooed by WPP Group; Doner Chairman-CEO and President Alan Kalter said the agency is "not having discussions with anyone."

Young & Rubicam also has been rumored to be talking to WPP. Last week, Tom Bell, president-chief operating officer, said the agency is not in talks and does not want to be acquired.

Bates Worldwide -- held by Cordiant Communications Group -- and Saatchi & Saatchi also both pooh-poohed acquisition talk.

However, the stock market reacted with zeal to the latest in a long line of deals that have reshaped the agency landscape. Shares of Saatchi, Cordiant and Y&R all saw strong gains amid much activity. On Nov. 3, the day news of the Leo Group alliance hit the papers, Saatchi and Cordiant became two of the most actively traded issues on the New York Stock Exchange based on their size; the next day, shares of both hit a 52-week high. Y&R volume jumped 23% in one day of trading.

HOLDING OUT

Industry analysts question how long remaining independents will be able to hold out. Merrill Lynch analyst Lauren Fine said U.S. independents won't be affected at all, but global shops such as Saatchi, Cordiant, Havas Advertising and Publicis, will probably feel more pressure.

"There's still more dancing here. It has to happen," she said. "You could argue that someone like Saatchi could hold out and wait for MacManus and Leo to get sorted out."

The reasons to merge can be compelling. Bulk, buying power and maintaining competitive size are just some of the obvious ones. And as marketers merge and consolidate worldwide, they are demanding partners with global reach.

Bear Stearns analyst Alexia Quadrani said, "I think this is the beginning of more to come. It's a surprise for the fourth quarter that could kick off more."

The remaining U.S. independents may not feel so pressured to merge, but they're all definitely getting feelers from the big holding companies. Fallon McElligott has been rumored as an acquisition target, as have Deutsch and Wieden & Kennedy. Marketing services agency Frankel is also being courted by four major holding companies (see story, above right).

DEUTSCH OPTIMISTIC

Deutsch Chairman-CEO Donny Deutsch said, "We get approached all the time, but we'd only do it if it was right for us and our clients. Right now our business model seems to be working really well."

Mr. Deutsch said he expected some positive fallout, since his agency's independence becomes an even more unique selling point.

There are fewer clearly defined agency brands today, he said. A merged company can create a brand, of course, but it has to find what that is between the two first.

"For us, our competitive differentiator keeps growing stronger," Mr. Deutsch said. "The residue of all these mergers is where have all the agency brands gone."

In this article:
Most Popular