True North's Chrysler loss raises acquisition question

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No suitor emerged immediately for True North Communications in the aftermath of the shop losing its bid for the $2.4 billion Chrysler Group account consolidation.

In fact, some analysts disputed that the exit of the Chrysler business from TN's FCB Worldwide, which accounts for 25% of the holding company's profits, puts TN into play. "True North is not automatically attractive just because they lost their biggest account," asserted Jim Dougherty, analyst for Prudential Securities. "I just don't buy it."

True North Chairman-CEO David Bell, however, left the acquisition door open last week during a conference call with analysts. "We continue to say this management team is open to strategic opportunities if it fits our client needs and shareholder value," he said.

Company watchers note the company is undervalued vs. competitive agency stocks. Following the review announcement, analysts downgraded True North's 2001 earnings per share estimate to $2.16, from $2.22. TN's Nov. 10 closing stock price was $38.44.

Analysts estimate TN's potential sale price at 17.5 times earnings. That's well below highest-valued Omnicom Group, which Troy Mastin, analyst for William Blair & Co., pegged at 29 times earnings based on a share price of $80.50.

The factors driving value, said Mr. Dougherty, are organic revenue growth, geographic reach and business mix. True North lags in all three, he said.

Most likely to be interested, according to company watchers: the top three holding companies -- Omnicom, Interpublic Group of Cos. and WPP Group -- as well as French holding companies Havas Advertising and Publicis Groupe.

"Only a large, well-capitalized company can do this deal," said Abe Jones, managing director at investment banker AdMedia Partners. In terms of resources, he pointed to Interpublic or No. 4 Havas. "IPG only has two ad networks after it folded Lowe together with Lintas," he said. "Havas now has Arnold and Euro RSCG, but could they use a third network." He said FCB Worldwide's strength as the No. 4 U.S. agency brand, along with sibling "flanker agencies" Bozell and Temerlin McClain and public relations capabilities in BSMG Worldwide, would make True North a good fit.

With currency alone, Publicis and Havas could make a fair offer, said Karen Ficker, analyst at ING Barings. Considering its shared client list and 9% stake in True North, the once rebuffed Publicis may have a reawakened interest, she said. "[Publicis Groupe President] Maurice [Levy] is a very smart man. He's going to wait to see," she cautioned, noting he doesn't need the company after just purchasing Saatchi & Saatchi.

She also said Cordiant would make an interesting partnership of equals, as the two "are almost perfectly [geographically] overlapped.".

Merrill Lynch analyst Lauren Rich Fine said Omnicom is most likely to buy TN. She also ruled out Grey Global Group, noting that it runs counter to its culture.

Another consideration is Bcom3 Group, which combined with True North would make the country's fourth-largest network, said William Blair's Mr. Mastin. He said it would be hard to pull it off pre-IPO, but said it makes sense.

LOST LUSTER?

Without its largest account -- particularly one in the desirable auto sector -- TN may well be less attractive to an acquirer. Analyst Mike Russell of Morgan Stanley Dean Witter & Co. said TN may have a shot at another car company.

But automotive clients are few and far between: Toyota Motor Sales USA (held by Publicis Groupe's Saatchi & Saatchi) and General Motors Corp.'s Oldsmobile (now at Bcom3's Leo Burnett USA) are considered to be True North's best chances for new business.

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