Saatchi deal puts Publicis in No. 5 spot

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Less than a day after Saatchi & Saatchi agreed to become part of the new fifth-largest worldwide advertising organization, Saatchi Chairman Bob Seelert boasted the new Publicis Group "wouldn't be No. 5 for long."

After Publicis' all-stock acquisition valuing Saatchi at $2 billion, Cordiant Communications Group's Bates Worldwide is expected to be the next stand-alone global agency on the block, with Interpublic Group of Cos. a likely bidder.

Admen at last week's International Advertising Festival in Cannes speculated unkindly that a Bates deal has few potential client conflict problems because, as one put it, "Bates hardly has any international clients."

With Publicis Chairman Maurice Levy ruling out any further Saatchi-size acquisitions in the immediate future, Mr. Seelert's hopeful forecast of landing the No. 4 spot relies on building up marketing services division Publicis Dialog and steering Procter & Gamble Co. and other Saatchi clients into those companies.

"Procter & Gamble has designated us brand navigator for all their brands, including advising them on marketing services. Now we have something to navigate them into," Mr. Seelert said.

Both Saatchi and Publicis are far behind their rivals in marketing services -- which make up just 20% of the two networks' combined revenues compared to more than half for WPP Group and other competitors. Mr. Levy is promising to push that to 30% within three years through organic growth and niche acquisitions.


One CEO at a top 10 marketing services agency said it is going to be difficult for Publicis to add integrated services to the mix. "There simply isn't that much quality out there on the market," he said. "They'll be very challenged to materially shore up their [marketing services] position."

Havas Advertising recently bolstered its marketing services capabilities through its acquisition of Snyder Communications and its direct division, Brann Worldwide. Havas' Euro RSCG also has been beefing up its marketing services capabilities. The Sales Machine division, headed by Daniel Morel, includes 80 agencies worldwide. Last year, 19 of Euro RSCG's 31 acquisitions were marketing services companies.


Publicis company already has snapped up three more U.S. non-traditional agency companies this year. In January, it bought Frankel, a Chicago-based sales promotion, database marketing and interactive communications company.

Saatchi CEO Kevin Roberts said that Visa International, for example, is a Saatchi client in Asia and Europe and works with Frankel in the U.S. "This new situation offers us a real possibility to squeeze BBDO for the U.S. [advertising] business," he said. Separately, Mr. Levy also has pledged to make Fallon, acquired this year, an international agency network.


A more immediate issue is what to do with two would-be global media brands, Publicis' Optimedia and Zenith Media, owned jointly by Saatchi and Bates Worldwide's parent, Cordiant Communications Group.

Although last week's merger grew out of a breakfast Mr. Levy bought Mr. Seelert back in December at London's Ritz Hotel, the two men couldn't contact Cordiant before informing the stock exchanges about the deal last Monday.

"We've just been able to begin these conversations" on June 20, Mr. Seelert said.

Optimedia's worldwide media billings total $8.6 billion and Zenith's are $7.4 billion, according to Advertising Age figures.

Mr. Levy said, "We will have to sit down with [Cordiant CEO] Michael Bungey and [Zenith Chairman] John Perriss and figure out the best combination for clients."

Cordiant likely will eventually sell its 50% stake in Zenith. Last year just 6% of Zenith's billings came from Bates clients and 28% from Saatchi, although in a complicated split, Cordiant gets 37% of Zenith's earnings and 63% go to Saatchi.


If Cordiant doesn't want to sell, Publicis "can just tell Bates, here are your little accounts back, just take them," said a U.S. media executive. But it probably won't come to that.

The current shareholding is likely to continue until Cordiant is sold, enabling Bates to move its business directly from Zenith to its new owner's media buying brand.

But Mr. Bungey was very clear about the prospect of Cordiant selling its interest in Zenith. "We have no intention of selling our stake in Zenith," he said. "We have every intention of remaining a player in the media business."

The latest deal comes after a whirl of activity by Mr. Levy.

"Six months ago, Maurice Levy was with True North," said Alain de Pouzilhac, chairman-CEO of Havas. "Four months ago, he wanted to merge with us. A month ago, he was talking to Young & Rubicam. And now he's signed a contract with Saatchi. So I'm lost!"


So far, few client conflicts have surfaced, with even global rivals such as Saatchi's P&G and L'Oreal at Publicis agreeing to co-exist at separate networks within the same group. Mr. Levy said he spoke with Publicis' three biggest global clients, L'Oreal, Nestle and Renault, while Mr. Roberts contacted P&G, General Mills and Toyota Motor Co.

Mr. Roberts said P&G's new president-CEO, A.G. Lafley, told him that the deal "will make Saatchi & Saatchi stronger, more competitive and help us hire the best creative people."

Similarly, Mr. Roberts said Toyota is "happy that the deal will give Saatchi & Saatchi more international power," adding that the carmaker had been asking about the agency's global strategy for some time. And General Mills already has a European joint venture with Nestle to market cereal.

Asked how Toyota felt about Publicis & Hal Riney working on General Motors Corp.'s Saturn brand, positioned squarely against Toyota in the U.S., Mr. Seelert said, "Toyota is familiar with Publicis and the entire range of car brands they handle. So long as we maintain a separate network it's not a problem."

Toyota tolerates conflicts within the Saatchi network, which handles Volkswagen's Audi in Germany.


However, some Saatchi executives are concerned that the new holding company's name, Publicis Group, makes it harder to separate the two networks in the minds of clients and potential clients. And conflict concerns may make a merger between the Optimedia and Zenith media brands unlikely.

Zenith's Mr. Perriss pointed out that as media agencies increasingly handle planning as well as buying, clients are more conflict-conscious. "I think there is no way people will put them together in one operating company," he said.

For Publicis, a big advantage of the Saatchi deal is increased size in the U.S., Publicis' weakest market. With Saatchi, 38% of the new Publicis Group's revenues are U.S.-based, up from 27% last year.

Last week news of the deal spread fast. When Patrick Pitcher, Saatchi's CEO for Asia, turned up in Shanghai to break the news, the agency's staff greeted him with "Bonjour, vive la France."

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