The country's third-largest holding company is in negotiations to purchase some street cred in the form of Steve Stoute's branded-entertainment shop, Translation Consultation & Brand Imaging. Making a bet on youth and urban markets, Interpublic is set to acquire the four-year-old company noted for promotional pairings that include Justin Timberlake with McDonald's, Jay-Z with Reebok and Hewlett-Packard with Gwen Stefani.
Financial terms of the transaction, expected to be completed this week, are unclear, though the deal is estimated at between $10 million and $15 million.
A spokeswoman for Mr. Stoute declined to comment and referred calls to Interpublic. A holding-company spokesman declined to comment.
Mr. Stoute, a former record exec and manager for rap artist Nas turned urban-marketing guru, launched Translation in late 2003 after a stint at the now-defunct Pass marketing agency. There, he partnered with Peter Arnell, CEO of Omnicom Group's Arnell Group.
Mr. Stoute gained notoriety for his promotional matchmaking skills and even dabbled in the beauty space, in 2005 leading a star-studded team of investors (Will and Jada Pinkett Smith, Tommy Mottola, Jimmy Iovine, Jay-Z) to back Lisa Price's Brooklyn-based line of skin- and hair-care products, Carol's Daughter, for which Ms. Pinkett Smith was the first spokesmodel.
It was also Mr. Stoute who recently brokered a deal between singer Beyoncé and Samsung to produce the B'Phone, a limited-edition burgundy-and-gold cellphone that comes preloaded with photos and videos of the star. It will be released next month with Sprint as the exclusive carrier and Wal-Mart as the exclusive retailer. And for McDonald's, Mr. Stoute was working to redesign its worker uniforms to be hipper and more appealing to youth, though that project never got off the ground.
Whether Interpublic or Mr. Stoute initiated the talks is unclear, but the holding company has been in discussions with him for the better part of the year, executives familiar with the matter said. Among those personally involved in the discussions: DraftFCB Chairman-CEO Howard Draft. Mr. Draft could not be reached for comment.
Details up in the air
The parties are still ironing out certain operational kinks, executives said, but Translation, which has a full-time staff of 40 to 50, is expected to operate as an autonomous unit under the Interpublic umbrella, liaising with the company's agencies and their clients on a project basis. It's also unclear what will happen to the 20% stake Universal Music owns in Translation.
With this buy, Interpublic and its new marketing agency would be poised to rival holding-company-backed branded urban shops such as SpikeDDB, a division of Omnicom Group's DDB Worldwide founded by film director Spike Lee that creates integrated communications targeted at African-American and urban markets. It also will compete with Platinum Rye, part of the Omnicom family, and WPP Group's Group M, which touts sports and entertainment marketing among other services.
"It's a great move for Interpublic. Steve brings a cultural connection that's very valuable, and if it's leveraged with the resources of a large holding company, it will increase [in value]," said former Reebok Chief Marketing Officer Dennis Baldwin, who is managing partner of venture-capital firm Breakaway Ventures and interim CMO of ice-cream vendor Moobella, both in Massachusetts.
"He has a rare mix of an understanding the youth consumer and the ability to clearly communicate his understanding to senior executives in a language they understand and utilize," Mr. Baldwin said. He hired Mr. Stoute to help create the RBK brand platform for the sneaker retailer, for which Mr. Stoute negotiated relationships with hip-hop artists including Jay Z, 50 Cent and Nelly.
The move is strategically wise for Interpublic, which "is focused on finding ways to build out their business in certain target demographics," said Mike Simonton, an analyst at Chicago-based Fitch Ratings. "Obviously urban and youth-oriented marketing is an important place to focus, and such an acquisition does make some sense."
One lingering question relates to the possibility of restrictions on Translation -- which, for example, enjoys a strong relationship with fast-food giant McDonald's (the latter is affiliated with Omnicom agency DDB and Publicis's Leo Burnett Worldwide, among others) -- that would prevent it from working with clients and agencies outside the holding-company family.
It would, however, be aligned with General Motors Corp., a major Interpublic client. GM last year called upon Mr. Stoute to boost its youth-market appeal for Chevrolet and other brands. He responded by enlisting racer Dale Earnhardt Jr. and rapper T.I. That last matchup is now seeing some problems, as Chevy told news outlets it is reviewing its contract with the rapper, who was arrested for illegal gun possession earlier this month.
"I initially engaged Steve and the team at Translation," said Michael Jackson, former VP-marketing and advertising for GM in North America. "The team is very sharp and offered insights and creative solutions in support of our marketing efforts. I always appreciated the passion and enthusiasm that they demonstrated, particularly around GM's brands' challenge of being relevant to young, well-educated, affluent, urban consumers."
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Contributing: Jean Halliday