Ailing MarchFirst shops McKinney

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McKinney & Silver is angling to be acquired as it seeks to cut ties with cash-strapped parent MarchFirst. Havas Advertising, Paris, is the frontrunner to buy the Raleigh, N.C., shop, according to executives close to the situation.

"There are discussions going on in terms of what's best for our future," said McKinney CEO Don Maurer, who declined further comment.

Over the last several months, executives at McKinney have met with both ad agencies and holding companies to try to strike a deal that would get them out from under floundering Web consultancy MarchFirst. And MarchFirst, which could use the cash a sale would generate, is said to be eager to consummate a deal. In addition to Havas, McKinney and MarchFirst executives also have talked with a number of other advertising companies, including MDC Communications' Maxxcom, Toronto.

Those close to the situation say an acquisition by Havas would be optimal for McKinney. The deal would be blessed by cornerstone McKinney client Audi of America, since Havas already does work for Audi parent Volkswagen AG through its Arnold Worldwide Partners unit.

However, Audi executives have expressed a desire to keep McKinney as a standalone agency. Given that, it's unclear exactly how Havas would structure McKinney in its network of holdings since Havas' other advertising arm, Euro RSCG Worldwide, already does work for Ford Motor Co.'s Volvo Cars of North America, an Audi competitor. It also seems unlikely McKinney would be housed under Arnold since Volkswagen executives have said the company does not want both divisions housed at the same agency.

Audi Communications Manager Doug Clark, who oversees national advertising, would only say, "Of course we are aware of the interest expressed by Havas in McKinney & Silver. While it is premature to say anything further at this time, we would support such a union on the proviso that McKinney & Silver maintains the autonomy to continue to appropriately provide Audi with dedicated, undivided marketing services as our agency of record."

A MarchFirst representative said that although the company has made "no formal announcement whether [McKinney] is up for sale or not," MarchFirst "constantly has to evaluate their business holdings." Havas executives did not return calls for comment by press time.

Industry observers say McKinney's price tag would be in the $30 million to $35 million range. Although its parent is contending with financial woes, the midsized agency is profitable. According to Advertising Age data, McKinney had gross income of $26.2 million in 2000, up 16% from 1999. Its 2000 billings rose 31% to $349.7 million. Audi accounted for about $75 million of those billings.

McKinney executives are familiar with negotiating an agency sale. In 1997, MarchFirst predecessor CKS Group bought the then-independent shop for $24 million in stock. MarchFirst, created by the March 2000 merger of Whittman-Hart and USWeb/CKS, owns 100% of McKinney and is said to be actively involved in discussions to sell off the agency.

MarchFirst certainly could use the cash. Its stock closed at 28 cents March 23, down 99.4% from its 52-week high of $47.13. The company also has significantly scaled back its work force--it's had three rounds of layoffs since November. In January, it let go 550 staffers. In just one year, the company's personnel numbers dropped from about 10,000 to roughly 7,600. In 2000, MarchFirst lost $7.7 billion on revenue of $1.2 billion. The loss includes a $6.5 billion accounting charge related to the merger of USWeb/CKS and Whittman-Hart, $133 million in restructuring costs including layoffs and $143 million in losses from venture capital and other investments.

"For sure, MarchFirst needs the money," said Prudential Securities Analyst Jim Dougherty. "[The money] would come in very handy."

If McKinney sells to Havas, a deal could come as soon as next month. Analysts say a fast-track deal would be best for McKinney, especially since MarchFirst is in such dire straits.

"Once these companies get in trouble, the effects start to snowball," said Marissa Gluck, Jupiter Media Metrix analyst. "Most of [MarchFirst's] assets are in human capital, and obviously they are losing that pretty rapidly."

Earlier this month, MarchFirst saw a series of departures from its executive suite. Chairman-CEO Robert F. Bernard, President-Chief Operating Officer Thomas R. Metz and Exec VP-Client Services Group Joseph Bong all resigned.

Contributing: Jean Halliday, Catharine P. Taylor and Hillary Chura

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