The Final 4: Publicis makes cut

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Rarely in the advertising world is anyone thrilled to come in fourth. But in the case of Publicis, it means a move into the top echelon of global advertising.

The reigning oligopoly of ad agency superpowers just got bigger with No. 5 Publicis Groupe's deal to buy No. 7 Bcom3 Group for $3 billion. For marketers, the acquisition gives the agency field a true new contender, turning a match of three giant holding companies into a game of four.

The new Publicis-of which Bcom3 partner Dentsu will own 15%-creates a superpower behind Omnicom Group, Interpublic Group of Cos. and WPP Group.

"I don't see how anyone else can now join the top tier," said Maurice Levy, Publicis Groupe's chairman-CEO. "I think the game is over."

Under the agreement, Dentsu will pay $500 million to up its 22% stake in Bcom3 to 40%. Then Publicis will pay $3 billion for 100% of Bcom3, with half coming from newly issued shares and the rest through two 20-year equity-linked securities. When the deal closes, Dentsu will own 15% of the merged venture and hold two seats on the supervisory board.

It is Bcom3's strategic alliance with Dentsu, Japan's largest and most powerful agency, that offers the expanded Publicis the global bargaining clout to take on the three bigger rivals.

"Together, they are bigger than everyone else," said Mike Russell, analyst for Morgan Stanley, which represented Bcom3 in the deal. "Now you've got four, but it's four with an asterisk."

Omnicom President-CEO John Wren said he welcomes the competition. "I wish them the best of luck and hope to see them on the battlefield," he said. He called Dentsu a "very important partner" that "differentiates [Publicis] from others in the top tier."

Financial analysts and other industry observers gave a thumbs-up to the Publicis-Bcom3 deal, calling it fair but saying the real test is how well the new siblings come together and how they navigate the conflict minefield. On news of deal, Publicis' share price rose March 7 by 10% in the U.S. and 12% on the Paris Stock Exchange. Stocks eased back slightly March 8.

up the food chain

Buying the parent of Leo Burnett Worldwide and D'Arcy Masius Benton & Bowles moves Publicis up the food chain with a roster of marketing superclients including General Motors Corp., Procter & Gamble Co. and McDonald's Corp.

"The advertising landscape is settled now. There's nowhere to go," said Donny Deutsch, chairman of Deutsch, a New York agency he sold in late 2000 to Interpublic for $265 million.

The new landscape squeezes second-tier players including Aegis Group, Cordiant Communications Group, Grey Global Group and Havas Advertising. Midsize shops could roll up a new No. 5 or add to the scale of the Goliaths, who now may mull a new wave of consolidations amongst themselves.

UBS Warburg analyst Christopher Dixon said the deal does "vault Publicis into the big leagues," but he questioned whether there was room for one more deal. "That's where it gets tricky."

For Bcom3, Chairman-CEO Roger Haupt said a sale to Publicis achieved broader goals better than the initial public offering that Bcom3 has been eyeing for several years.

"This was all about securing the long-term future of our brands and building service capabilities for our clients, and in my opinion an IPO was the best way to do that," he said. "[But] the strength in Asia, Europe and America, we're getting that instantly. An IPO in this environment would not have produced that result in any speed in the way we are able to do this." Mr. Haupt will become president-chief operating officer of the Publicis management board.

Mr. Levy will report to a supervisory board consisting of Dentsu's two top executives, President Yutaka Narita and Fumio Oshima, senior managing director, and presided over by Elisabeth Badinter, daughter of Publicis founder Marcel Bleustein-Blanchet.

After Mr. Levy approached Mr. Haupt with the notion of a deal last September, Mr. Levy said the two men met "in funny places," skulking around hotel rooms in New York, London and Paris. "No one saw us," he said.

dentsu's decision

Once the two men agreed it was the right deal, Mr. Haupt opened conversations with Bcom3 minority investor Dentsu.

Asked whether Dentsu made its own bid for Bcom3, a Dentsu exec said, "Yes and no."

"We talked about the possibility," said Meguro "Meg" Niimura, Dentsu's senior executive officer and deputy managing director, international business. "Then Publicis emerged as a possibility, and we concluded that deal would be better for us in the long run." Dentsu never actually made its own formal bid for Bcom3, he said.

Dentsu and Publicis are vague about exactly how they will work together. Dentsu needs, for example, to find ways to work with its huge Japanese clients outside Japan. Also Dentsu so dominates Japanese media buying through size that it has developed few media planning or research skills.

"That's confidential at this point," Mr. Niimura said. "But for client development, the new company provides more interesting planning weapons, particularly in the media area and research."

Messrs. Levy and Haupt rejected comparisons with the ill-fated HDM, an attempt 15 years ago to unite Havas, Dentsu and Marsteller, then part of an independent Young & Rubicam. HDM foundered on cultural and other problems.

"HDM was just a joint-venture of three very different ventures that were still running on their own," Mr. Levy said.

As for Publicis, its dealing may not be over. On a far smaller scale, Publicis apparently is close to a deal to buy San Francisco ad shop Amazon Advertising, an agency founded by women to target women and that's picked up work for P&G in Latin America. Amazon declined to comment; Publicis officials as of late March 8 could not confirm the deal.

conflict resolution

For Publicis and Bcom3, a key challenge now is to manage potential client conflicts stemming from the deal. Publicis executives say they have been greenlighted by most clients. But the agency group houses competing automakers, airlines and package-goods companies, and rival agencies are without a doubt poring over the deal to look for vulnerabilities. Mr. Levy is aware big rivals will try to exploit the deal to pick off his clients.

"We're pretty sure a lot of our competitors will explain to clients that this is the right time to move," Mr. Levy said. "We hope to be in a position to demonstrate to them that we are their best partners."

Bcom3's D'Arcy Masius Benton & Bowles, Troy, Mich., handles GM's Pontiac and Cadillac brands, and sibling Leo Burnett USA, Chicago, does work for GM's soon-to-be-parked Oldsmobile brand. Publicis' Saatchi & Saatchi, Torrance, Calif., handles Toyota Motor Corp. USA's Toyota and Lexus, and Publicis' Fallon, Minneapolis, handles BMW of North America.

A GM spokeswoman said the automaker was still getting more information and wasn't in a position to comment.

GM and Toyota have been paired before: Publicis & Hal Riney, San Francisco, until recently handled GM's Saturn Corp. while Publicis' Saatchi has Toyota. BMW officials weren't available for comment.

Publicis clients include Johnson & Johnson, L'Oreal, Nestle, P&G and United Airlines. Bcom3 accounts include Delta Air Lines, Kellogg Co., Philip Morris Cos., P&G and McDonald's Corp.

So far, most clients appear to embrace the merger.

"We've enjoyed a great relationship with both Saatchi & Saatchi and D'Arcy, and are excited about continuing to work with both companies," said Rick Hosfield, VP-marketing at General Mills.

Publicis-Bcom3 now becomes superagency to P&G, handling most of its global advertising. Said Jim Stengel, P&G global marketing officer: "It will further strengthen our agencies' global presence and provide us with the best talent and best ideas available in order to build our brands."

contributing: alice z. cuneo, jean halliday, normandy madden, jack neff, lisa sanders, stephanie thompson and rich thomaselli

Fast Facts

Power brands

Selected client list

Publicis Groupe

Fallon: BMW, United Airlines

Publicis: L'Oreal, Renault

Publicis & Hal Riney: H-P, Sprint PCS,

Saatchi & Saatchi: P&G, Toyota

Bcom3 Group

Leo Burnett: Philip Morris, P&G

DMB&B: General Motors, P&G

Ayer: General Mills, Continental Airlines

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