Despite the pact, however, the move resembled more of a first step in an eventual divorce, to be consummated by both sides pulling capital stakes out of the other some time in the future, than an actual reconciliation.
Under terms of the agreement unveiled Thursday, Publicis will increase its stake in the Publicis-FCB European network from 51% to 100%, and fold it into its European Publicis operations.
In exchange, Publicis will sell to True North all shares in joint- owned, stand-alone FCB agencies in Athens, Lisbon, Paris, and London - cities where Publicis says it has representation via offices in its secondary FCA!BMZ network.
Those agencies will be sold in exchange for a portion of True North's shareholding in Publics FCB Europe. The remaining interest will be converted to an increased True North shareholding in Publicis Communications, the advertising operating unit of Publicis S.A. The four FCB stand-alone agencies will be combined with the recently acquired Wilkens network to form a separate, wholly-owned FCB network in Europe, with agencies in 19 countries and billings of $750m.
The Publicis FCB European network - Europe's largest agency network, which has been jointly owned by the two partners - will take the name Publicis Europe, which will be wholly owned by Publicis Communications (the unit that groups all of Publicis' advertising and related business), of which Publicis S.A. will hold 73.5% and True North 26.5%, compared to the 20.8% it currently owns. Publicis will maintain its 20% stake in True North. Each company will continue to hold a seat on the other's board of directors.
In other parts of the world, True North will sell to Publicis its interest in the South African agency, The Partnership. According to True North's February 20 statement, in Argentina, Australia, New Zealand, India and Thailand, True North will assist Publicis in establishing its own separate operations, with details to be announced shortly. However, Publicis said Thursday that it will buy co-owned agencies in South Africa, New Zealand, Australia, Thailand, India, and Argentina for what Publicis President Maurice Levy estimated to be roughly between $14.5 and $18.1 million. Publicis then plans to merge these agencies into Publicis Communications, an addition that will either reduce True North's overall stake to around 23%, or force it pay Publicis to retain the initial 26.5% stake. Publicis' 20% stake in True North, meanwhile, remains unchanged.
"Publicis takes 100% control of the European joint-venture, and remains the largest shareholder in True North and present on its board," Mr. Levy simplified. "This reinforces Publicis in Europe with a stronger, solidified Publicis brand. Added to that is a good second network in FCA!BMZ, and control of Europe's fifth largest media buyer in Optimedia."
The agreement calls for continued partnership between the two groups, both in global media buying via Optimedia as well as in one agency representing clients of the other in markets where the latter has no office.
According to True North, Publicis and FCB will enter into long-term service agreements to serve each other's clients in countries where it is not practical for both to have an agency. The two agencies also agree to "facilitate alignment" of multinational clients within their respective networks in accordance with client wishes. Publicis says the accord notes that budgets being shared in markets where both agencies are represented be returned to the agency of origin. This would mean, for example, that Publicis hands back all S.C. Johnson and Kimberly-Clark business to FCB, while taking back all Nestle and L'Oreal work that had been outsourced to FCB.
Indeed, while the accord does settle grievances pending since April of 1995, it has all the marks of programmed break-up. The agreement sees Publicis relieving True North from the decision-making role it played when it had a 49% stake and veto vote in the joint European network. The divvying up of property between the two, meanwhile, appears to prepare both for an easier and less hostile spilt in the future. Mr. Levy, for example, noted that "all options are open" in maintaining Publicis' stake in True North in the long run - meaning he could either pull out entirely or consider trying some sort of buyout bid. He also admitted that True North officials had shown interest in selling all their participation in Publicis as well as the joint venture, but that the price Publicis was willing to pay for the stake was not high enough.
"In all, it looks like a good deal for Publicis," commented a Paris broker who asked not to be named. "It gets control of the European network, and meanwhile knows the only place True North can go in shareholding terms without Publicis' consent is down. I don't really see the logic in True North hanging in there over time. It will have to think about developing without Publicis. Whether Maurice Levy sees True North as part of his future is another matter."
In 1996 Publicis unilaterally called of the alliance. True North's acquisition of the Wilkens network on January 31 of this year cleared the way for the worldwide alliance to end for FCB, which has only a limited presence in Europe beyond the Publicis FCB network. The Wilkens network largely consists of the old Ayer Europe Network. In early 1995, N.W. Ayer & Partners sold its minority stake in Ayer Europe back to the local agencies that made up the network. They, in turn, sold 49% of the network in October 1995 to Konstantin Jacoby and Reinhard Springer, co-founders of Germany's ninth largest agency, Springer & Jacoby, and a number of other shareholders. Wilkens International's main international clients are SEAT and Beiersdorf.
While the acquisition of Wilkens helped FCB fill gaps in its global network so that it could service international clients such as S.C. Johnson & Son and Kimberly-Clark, Publicis has spent the past 12 months building up its network outside of Europe with agency acquisitions in Mexico, Brazil, the Philippines, Singapore and Canada. Publicis' most important international client is Nestle.
"The combination of our European FCB units and Wilkens results in a full-service, pan-European network with billings surpassing $1bn and with more than 850 employees," says Brendan Ryan, chairman and chief executive of Foote, Cone & Belding. "With FCB's total management control of the global network, our ability to deliver superior clients service is dramatically enhanced."
FCB says it ranks among the 10 largest networks in Asia- Pacific, is No. 7 in Latin America and leads North America.
Copyright February 1997, Crain Communications Inc.