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TRUE NORTH WANDERS OFF COURSE UNDER MASON'S DIRECTION: NEWS ANALYSIS: HOLDING COMPANY SUFFERS FROM FLAT STOCK; BOARD SHOWING IMPATIENCE

By Published on .

True North wanders off course under Mason's direction

When FCB Communications changed its name to True North two years ago, it called the new moniker "a tangible, objective, provable direction forward."

Since then, the Chicago-based company seems to have lost its compass. On Aug. 8, it reported net income of $6.05 million for the second quarter, down 47% from a year ago, on a revenue gain of 6.8% to $118 million.

Those results continue True North's trend of steady but slow revenue gains in a period when the growth of other advertising companies, including holding-company rivals Omnicom Group and Interpublic Group of Cos., has been explosive.

True North's thinly traded stock reflects the company's lackluster performance. It closed Aug. 9 at $19.25 per share, down from about $20 a share two years ago and a 52-week high of $27.75. Shares of both Omnicom and Interpublic have appreciated more than 50% the last two years.

"It's a troubled company," said Jim Dougherty, advertising and business services analyst at Dean Witter Reynolds, New York.

True North is a study in contrasts. Its Foote, Cone & Belding is the nation's largest ad agency by billings, yet ranks only eighth in revenue. True North has proved one of the boldest companies in the industry with its aggressive steps into new media; at the same time, it has exercised what some observers consider undue caution in making acquisitions, the main growth vehicle of its rivals.

MASON'S GRIP WEAKENING?

At the controls of this wandering craft is Bruce Mason, who in his spare time is an amateur pilot; he has been with the company since 1969 and has been chairman-CEO since 1991. Mr. Mason, who has lately shunned the spotlight with a zeal unusual in the ad industry, declined an interview.

The 56-year-old chairman has to date enjoyed solid support from his board of directors, and no one has called for his ouster. But there have been signs this summer and spring that his grip on True North has been weakened.

In April, he passed the titles of chairman and CEO of FCB to Brendan Ryan, a rising company star. The rationale was to free Mr. Mason to focus more on holding-company matters such as acquisitions and organizational structure.

But the board this summer took the holding company's most pressing matter-its expired global alliance with Publicis Communication Group, a European joint

venture partner and 20% owner of True North-out of Mr. Mason's hands, establishing a special board committee to take over negotiations with the Paris-based group.

Executives close to Mr. Mason characterized the special committee as nothing more than a smart business move, noting the well-known clash of personalities between Mr. Mason and Publicis Chairman-CEO Maurice Levy.

Others saw it as the first sign of impatience from the True North board, made up of eight current or former True North executives, Mr. Levy and four outsiders.

Either way, the special committee's assignment is urgent. More than 40% of True North's profits come from Publicis; should the relationship end in divorce, potential alternative partners are scarce.

INVESTORS SHY AWAY

"Until the Publicis thing clears up," investors will steer clear of True North, Dean Witter's Mr. Dougherty said.

True North's stock enjoyed a climb this past spring when it began planning an initial public offering for its TN Technologies unit, one of the leading interactive operations on Madison Avenue.

The stock climbed higher when TN Technologies began talking about a merger with Modem Media, a cutting-edge Internet agency.

But the Modem talks have dragged on and the IPO is on hold until some resolution is reached. Meanwhile, the IPO market has come back to reality, dragging True North's stock with it.

And True North's heavy investments in TN Technologies have pulled down the parent company's profit margins, which considerably lag the industry.

The struggle to strike a deal with Modem is one True North watchers have seen before. The company negotiated on and off for much of 1994 and '95 to acquire Bozell, Jacobs, Kenyon & Eckhardt, never reaching a deal.

Though it has failed to make big deals, True North did buy a number of small agencies in Asia and Latin America last year.

SECOND-HALF HOPES

Its ability to make major acquisitions is hampered in part by its stagnant stock price, analysts said.

Another obstacle to dealmaking has been True North's hard-line negotiating tactics.

Chief Financial Officer Terry Ashwill has a reputation for being tough with numbers and lacking the ego-stroking skills often required in talks with agency principals. One executive who has sat across from him described him as a "pit bull." Above all, Messrs. Ashwill and Mason hate the idea of paying a premium for an agency.

FCB has seen some strong new-business wins this year, including $125 million in consolidated business from S.C. Johnson & Son, $40 million from Quaker Oats Co.'s Snapple and $30 million from Quaker State Corp.

True North's full-year projections last week were below analysts' estimates, but company executives are hopeful the second half of '96 will feature more forward steps, including revenue and profit gains and a deal with Modem.

"Our agencies continue to rank among the best new-business performers in the industry, generating growth not only from core multinational clients, but new blue-chip clients as well. As a result, expected revenue growth in the last half of 1996 is projected to yield improved earnings," Mr. Mason said in last week's earnings release.

From the pilot comes a flight plan. Now he must execute the takeoff.

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