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In purchasing up to 49% of U.K. creative shop Bartle Bogle Hegarty -- for an estimated $50 million -- Leo Burnett Co. may have put itself in a tough spot with key client Procter & Gamble Co.

At issue is Bartle's relationship with P&G rival Unilever. Bartle is the agency for Van den Bergh Foods' Stork margarine and Olivio olive oil in the U.K., along with three Elida Faberge brands -- Salon Selectives haircare, Lynx male body spray and Pear's Original soap.


Chicago-based Burnett is agency of record for P&G's $250 million print buying account, and handles creative assignments for such brands as Bold, Cheer, Noxzema, Pepto-Bismol, Secret and Tampax.

P&G officially declined comment on its agency relationships. But an executive close to the marketer, known for having little tolerance for conflicts, admitted P&G "is concerned" about the co-existence with its Anglo-Dutch competitor.

"Acquisitions and mergers in the agency business often do cause conflicts. In this case we are sure the conflict can be resolved in due course in line with our existing conflict policies," said a P&G spokeswoman.


Although it's not expected that P&G will pull any Burnett business, executives close to P&G believe it's likely P&G will expect Bartle to part ways with Unilever, perhaps in exchange for its own slice of P&G business.

Burnett executives, arguing that the networks will remain wholly separate, insist there is no conflict.

"If we had a majority interest, I'd agree," said Burnett Chairman-CEO Rick Fizdale. "If we had a minority interest and we sat on the board, I'd agree. But there is such a wall [between the two agencies], it's hard to see how there will be conflicts."


Mr. Fizdale said that apart from a link between the two shops' media operations, the agencies won't combine any resources or ever work together on an account or new business pitch.

"The only information we'll ever get from BBH is financial," he said.

When asked if Burnett had contacted P&G prior to the Bartle deal, he said: "In the sense of asking permission, no."

For London-based Bartle, which is trying to establish a larger foothold in the U.S. and is a finalist in the review for Levi Strauss & Co.'s $90 million Levi's jeans (see box at right), the affiliation gives it the media clout of Burnett without fear of becoming a cog in a large agency wheel.

"We have a global media delivery system, preservation of our standalone status as a brand and a very acceptable agreement that preserves our majority ownership in perpetuity," said John Bartle, joint chief executive with partner Nigel Bogle.

Because of that separateness, however, observers said it's difficult to see the benefits for Burnett beyond enhancing its creative reputation through association.


"In the near term, BBH provides global clients and global media," said Mr. Fizdale. In the long-term, "it will create an ongoing and ever-larger profit stream different than our own" that can be used to invest in technology and development.

He dismissed the idea that Burnett invested in the agency to give itself a creative halo.

"It was not part of our motivation," said Mr. Fizdale. "That's a silly reason to make a business deal."

But some observers said the deal doesn't appear to make financial sense for Burnett, the No. 1 U.S. agency brand with domestic billings of $2.65 billion in 1996. Bartle, the U.K.'s 14th largest agency, had billings of $291.3 million last year.

Based upon Bartle's $38.9 million in gross income in 1996, New York-based Prudential Securities analyst Jim Dougherty estimated it could take Burnett 28 years to recoup a $50 million investment without an uncommon growth spurt at the smaller agency.


What Burnett does gain is relief from constant speculation it will go public. Under the terms of its agreement with Bartle, Burnett would have to pay a "prohibitive" financial penalty to the other agency should it decide to go public or sell itself to another network, a Burnett executive said.

The structure of the deal could serve as a model for other independent agencies that want to access the resources of an international network without sacrificing their own brands.

In the past, top local agencies often sold out and became an office of a multinational network. Now, they are structuring deals that leave them in control as stand-alone agencies.

Nizan Guanaes, founder of hot Brazilian agency DM9, last June sold 40% of his Sao Paulo shop to DDB Needham Worldwide to further DM9's international ambitions. Unlike Bartle, DM9 is swallowing up the much smaller DDB Needham office in Brazil and will participate in its network. DM9 does keep its brand and a degree of independence that is new to such deals, however.


Burnett "didn't want to change us," said Mr. Bartle. "We talked to lots of people over the years and what they tend to always want to do is own a majority. The word majority never crossed the lips of anybody at Burnett."

Mr. Fizdale also said Burnett will use the Bartle deal as a model for future deals, indicating the agency will acquire minority stakes in other companies next year.

Burnett has vowed to change its stodgy image. Within the past year, it bought healthcare agency Williams Labadie; opened a "guerrilla" agency called Vigilante; branded its media department; and announced a restructuring to split itself into seven mini-agencies.

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