True North finds direction with David Bell at the helm

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When David Bell took over as CEO of True North Communications, the parent company of the agencies then known as Bozell Worldwide and Foote, Cone & Belding Worldwide had nowhere to go but up.

Its agency brands were languishing, its new-business track record poor, staff costs were high, and its stock price was in the tank. The company was also coming off of a bruising public divorce from Paris-based Publicis. And critics grumbled that Mr. Bell was a compromise candidate who might not have what it would take to lead True North.

One year later, Mr. Bell has addressed most of those issues and says he's ready to tackle the challenges that remain.

"Organizational growth comes more easily from collaboration than from net new-business wins," said Mr. Bell, a big proponent of agency brands sharing accounts and trading tips.

True North "has come a long way, and one of the nice things about them is that they don't seem to be overly satisfied," said Mike Russell, analyst with Morgan Stanley Dean Witter & Co.

Mr. Bell "is the first to admit we have made progress but have a lot more to do," agreed Gene Bartley, chairman-CEO of Bozell Group.

On the agenda for 2000: Expanding True North's position outside the U.S.; beefing up the network's non-advertising capabilities; accelerating the pace of new-business wins; and keeping the share price and earnings multiple climbing.

Despite some early successes, Mr. Bell remains cautious as he leads True North forward.

"There are people who wish he'd done some big splashy acquisition in one way or another, but I think you have to make sure you get your own house in order before you get involved in someone else's house," said Mr. Russell. "More than anyone else, David realizes it takes a lot of work to bring two companies together."

True North did just that last September, when it folded Bozell's international operations and some of its U.S. shops into FCB.

COMMITTED TO BOZELL

While some observers saw the move as the beginning of the end for Bozell, Mr. Bell insists True North remains committed to the agency, which fell from the country's 14th largest agency brand to No. 19 in the shuffle.

Even in its smaller incarnation, he said, it can thrive as a domestic agency. "Bozell can be a strong national brand and already is proving it is," he said.

Indisputably, True North has broadened itself during the past year. Some 35% of its revenues come from diversified operations, such as PR and sales promotion, compared with 28% a year earlier. It has also increased its presence in multicultural marketing -- purchasing minority stakes in Don Coleman Advertising and Imada Wong Communications Group -- and expanded its interactive units with the purchase of Stein Rogan & Partners and the launch of SixtyFootSpider.

Agency-watchers credit Mr. Bell not just with retaining most of True North's clients and staff following the merger, but with picking up more business from existing clients, such as DaimlerChrysler's European media planning and buying. But they question why few new clients have been added to a roster that includes AMR Corp., AT&T Corp., Coors Brewing Co. and S.C. Johnson & Son.

"It seems to be as if they've retained [accounts], but what have they really gained, unless their strategy is to keep their mouths shut and do [their jobs]?" said one former True North executive.

True North has been quiet about the $40 million functional foods account Monsanto Co. awarded FCB Worldwide, New York, this year and the $20 million in direct business that Datek Online, a client since July, handed Bozell, New York, in the first quarter. FCB is also one of four shops in Compaq Computer Corp.'s $300 million review, a party to which it likely would not have been invited without its expansion.

By the end of the month, FCB's Seattle office is expected to have snatched at least part of Boeing Corp.'s $50 million global branding business from McCann-Erickson Worldwide, Los Angeles. Already it's been working on assignments for the aerospace company, according to executives familiar with Boeing.

BIG PROSPECTS

True North's new-business wins last year were $640 million, up 28% from the prior year's $500 million. Its new-business score for the final three months of 1999 totaled $165 million -- more than double the tally for the same period a year earlier.

Organic growth, defined as actual income from new and existing cli-ents, grew only 0.2% in 1998 but jumped 6.2% last year. Merrill Lynch & Co. analyst Lauren Fine said True North is looking at even better prospects for this year.

Share price remains a sore spot. Prudential Securities analyst Jim Dougherty cautioned that although True North's stock price rose 66% last year, its growth paled in comparison to rivals.

The stock is currently trading at 19 times expected 2000 earnings, but should trade at a multiple of 25 times earnings or more, analysts said. Mr. Bell agreed, saying analysts are on track with estimates of $50 to $60 a share. As of March 30, its stock price was $39.44.

True North wants operating margins to rise to 12%, which Ms. Fine sees as an attainable goal. Last year, margins grew to 11%, from 10.6% in 1998.

Mr. Bell said he expects better margins as True North's agencies bring in more clients and boost business from current ones, which also will improve the staff ratio. The ratio, a measure of staff costs vs. income, fell slightly last year to 60.5% and is on its way to the desired 60%, according to Ms. Fine.

Plans are also underway to intensify True North's overseas position -- particularly in Europe -- with the March purchase of Helsinki ad agency Kauppamainos Oy. In the U.S., True North is looking to beef up its digital, healthcare and database capabilities. Mr. Bell said the company needs to focus on its media operations, including TN Media, as well as FCB and Bozell's media arms. Those units have been merged outside the U.S. and will be renamed.

By summer, FCB will launch a database subsidiary that will service all of True North. Already, 35 people have been hired for the New York-based group.

"We'd like to see a crescendo of client recognition of what they've put together," said Mr. Russell. "Whether Wall Street thinks it's the right combination doesn't matter as much as whether the client thinks it's the right combination."

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