Levy looks to build marketing services

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"You can't have a one-size-fits-all approach," observes Publicis Groupe Chairman-CEO Maurice Levy. "The client does not want to buy a system. If they did, they'd hire McKinsey or Bain. They hire us for ideas."

That diversity of services is what 61-year-old Mr. Levy hopes to build, now that he has signed up for another four-year stint at the holding company. With the digestion of Bcom3 Group complete, a public spat with General Motors Corp. settled and successors being sought to replace two top executives who left Leo Burnett, he's ready-to borrow client Heineken's catchphrase-to refresh other parts of the Publicis body.

"We are prepared for growth," said Mr. Levy, who maintains that Publicis' relative size to competitors is an advantage. "Most of our competitors are 50% larger than we are. That gives us room for growth in areas they can't grow anymore. Our potential for new business is still largely untapped." The company derives 56% of its revenue from traditional advertising, 19% from media and 25% from marketing and specialized services.

While Mr. Levy pointed out that being lighter in direct, PR and promotion assets helped Publicis' stock during the downturn, since such marketing-services firms proved less resilient than ad agencies during the recession, he also acknowledged the holding company must build its base in those disciplines. He said to watch for select acquisitions in marketing services, unspecified acquisitions in the Asia Pacific region and further ventures with partner Dentsu (see story, below).

Publicis must also sort out its hydra of marketing services, health-care and multicultural brands, said David Herro, managing director-international equities at Harris Associates, Publicis' largest shareholder. "There's a lot of work to do bedding down."


While Publicis' net revenue grew to $2.7 billion for the first nine months of 2003, much of the whopping 58% increase came from either the Bcom3 addition or existing clients such as package-goods titan Procter & Gamble Co.

"One of their strengths is their client list," said a French advertising analyst who asked not to be named. "P&G and GM continue to spend. This is what differentiates Publicis from the others." Other large clients include McDonald's Corp., Coca-Cola Co. and Altria Group.

"Maurice has done an exceptional job in creating and enabling an energetic environment, which has in turn attracted great creative and media talent to work on our business," said Jim Stengel, global marketing officer at P&G. But he hinted at a few areas-such as marketing services and advertising creative-where Publicis could improve. "We need to still drive greater marketing integration to build our brands at all consumer touch points. We need to continue to raise the bar on creative results on all our brands. And we need to bring greater talent focus and creativity to the media side of the business," he said.

To build its creative strength of the Publicis network, Mr. Levy in March tapped Cannes Grand Prix winner David Droga, formerly of Saatchi & Saatchi, as global executive creative director based in New York. Still, Publicis' big win last year, the $236 million global Sanofi Synthelabo consolidation, is mainly credited to Mr. Levy's influence and connections rather than the agency's creative reputation.

Saatchi, too, took its lumps in 2003. It's restructuring in New York following the loss of the $185 million account for Johnson & Johnson's Tylenol, a client for 28 years. The agency's Torrance, Calif., office was also at the center of the maelstrom this year with GM over the hiring of former employee Kurt Ritter to work on its Toyota Motor Corp. business. The two parties made up when Mr. Ritter came off the payroll.

At Leo Burnett, Mr. Levy is reviewing candidates for a new CEO for the U.S. and North America. Not only did the agency see Delta Air Lines and Polaroid Corp., with a combined $45 million in billings, walk out, but also Worldwide President Bob Brennan and Chief Operating Officer Steve Gatfield. The agency lost its $250 million Philips Electronics business, but won an additional assignment in a contest with DDB Worldwide to create a global campaign for McDonald's Big Mac.

Publicis is now looking to leverage its assets. This year, Mr. Levy will seek greater "integration" of its media agencies, Publicis' Zenith Optimedia and Bcom3's Starcom MediaVest Group, to the extent that they will share research and technology capabilities among other things.

An umbrella negotiating arm for media is being explored, as are moves into the Hollywood entertainment-marketing sphere; independent product-placement specialist Norm Marshall & Associates is in discussions for potential ventures for shared client Heineken. In the sports field, International Sports & Entertainment (ISE, a joint venture with Japan's Dentsu) is also out scouting properties to sell to advertisers, Mr. Levy said.

doing the impossible

Mr. Levy remains committed to operating margins of 15% and marketing services shops are being asked to do what was previously thought impossible. "SAMS [Specialized Agencies and Marketing Services] can get the same kind of margins we get in creative. I don't think there is any law that forbids that," he said.

In areas such as health care and multicultural marketing, he's focused on forming stronger identities for specialist agencies, which have previously worked separately. The company's health-care operations-Nelson, Medicus and Klemtner-are now grouped under Publicis Healthcare Communications, set up last year and run by Publicis Groupe Chief Operating Officer Roger Haupt out of Chicago. In the multicultural arena, Bromley Communications and Publicis Sanchez & Levitan are also laying the groundwork for greater cooperation on joint projects, though merger talks are officially denied at this point.

Analysts will also be watching how Publicis continues to fare on debt reduction (as of June 30, 2003 its net debt was $1.78 billion) and organic growth. For the nine months to Sept. 30, organic growth was 0.08%, according to the holding company, second only to Omnicom Group. "The priority is reducing net debt over the next two years through strong cash generation," Mr. Levy told analysts at the UBS Warburg media conference last month.

When asked about rivals such as Grey Global Group and Havas, Mr. Levy delighted in demonstrating just how far Publicis has distanced itself from the smaller players. "The standalones can't even get to the final stages because they don't have the resources. It is a question mark what will happen to them."

He also ruled out another big acquisition at this stage. "I don't see a reason why we would do it, for the time being," he said. "We have the most flexible assets."

Indeed, while Publicis is the fourth-largest marketing communications company in the world, Mr. Herro sees potential for it to move up-and not necessarily through buying binges. Publicis has the potential "to be in the top three," he said. "Not in terms of profits or revenues but in terms of quality of product ... and in stature."

contributing: jack neff

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