Fates of TN, BBDO weighed by analysts

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Win or lose, True North Communications has more at stake than Omnicom Group in the DaimlerChrysler Corp. shoot-out.

As TN's FCB Worldwide, Southfield, Mich., and Omnicom's BBDO Worldwide, Troy, Mich., prepare to square off, observers are analyzing the effect of the final decision on either company.

"The upside is not as great as the downside for either company on a financial level," said Alexia Quadrani, analyst at Bear, Stearns & Co. While DaimlerChrysler is the largest account at each agency, it represents about $140 million, or 9%, of True North's estimated 2001 revenue. Speculation also swirled that the account represents 25% of TN's pre-tax profits, but TN wouldn't comment and that figure couldn't be verified.

The impact for Omnicom would be negligible because DaimlerChrysler represents only 1% of BBDO's revenue. "We have considerably less of our business at risk than they do," said Allen Rosenshine, chairman-CEO of BBDO Worldwide. "It would not be a life-threatening loss. . . . [But] it is our largest account and we take this very very seriously. And we intend to win."


"Major agencies want car accounts. Some major agencies are prepared to handle a car account and some aren't," said David Bell, chairman-CEO at True North. "We fully intend to be a major factor in the car business going forward." He added that TN would seek another car account if it loses DaimlerChrysler.

Should FCB emerge the victor, it "would shoot TN's stock up and give it acquisition currency" to buy new shops, said Michael Russell, VP at Morgan Stanley Dean Witter. He added that if TN won, DaimlerChrysler would account for 14% of the agency's total business -- a percentage higher than usual for a typical top client. In that case, "they may want to bring in additional acquisitions to get back to the 10% level."

Most analysts agreed that, ironically, losing the account ultimately could be good news for TN. "If True North loses the account, the number of suitors that could buy the company would increase dramatically because there would be no client conflict," said Ms. Quadrani. She wouldn't speculate on how low TN's stock would need to go before a potential buyer would pursue the company in the event of a loss.


Observers speculated that Publicis Group or Interpublic Group of Cos. would find TN more attractive if it loses DaimlerChrysler. Morgan Stanley's Mr. Russell said, "it's really a question of whose multiple is higher."

"At $35 or $38 per share, more people could make a bid than when stock was trading at $40 or $42," said Karen Ficker, an analyst at ING Barings. She believes any loss for TN has already been factored in by investors, and the stock isn't likely to lose much more value. "[Wall Street is] beginning to realize it overpenalized TN for any hit it would take. Even then, it wouldn't impact the company until sometime next year."

On news of the review, investors punished TN. Its share fell 25% to $35.25 in heavy trading on Sept. 7. By Sept. 8, the share rebounded before closing at $39.13. "It's important to realize this comes at a time when the market is worried about advertising trends so any type of uncertainty is bad," Mr. Russell said. "The stock market, especially in the mood it's in right now, regularly overreacts to good and bad news."

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