CLOSE-UP: LIVE ISSUE/INTERNATIONAL MERGERS - Giant clients trigger advertising’s merger mania. Economic forces conspire to make network mergers inevitable, John Tylee says

By JOHN TYLEE, campaignlive.co.uk, Friday, 12 November 1999 12:00AM

’Don’t you think this is a wow?’ asked Roger Haupt, his euphoria scarcely containable in the wake of last week’s announcement of his appointment to lead a new holding company - provisionally called BDM - embracing the D’Arcy and Leo Burnett networks.

’Don’t you think this is a wow?’ asked Roger Haupt, his euphoria

scarcely containable in the wake of last week’s announcement of his

appointment to lead a new holding company - provisionally called BDM -

embracing the D’Arcy and Leo Burnett networks.



The response from the person to whom the question was addressed was, by

all accounts, rather more downbeat than BDM’s incoming chief executive

had expected.



Maybe because the merger news from Chicago was already being dwarfed by

another story coming out of Madison, New Jersey, where Warner-Lambert

and American Home Products were unveiling their mind-blowing dollars 70

billion plan to combine into the world’s largest drug company with a

stable of world-famous brands including Advil, Listerine and

Benylin.



But while the birth of American Warner puts the ad industry’s latest

marriage into perspective, it also helps explain why global advertising

networks are rushing into bed with each other.



’Who is going to be American Warner’s agency?’ David Bell, True North’s

chairman, asks. ’It sure as hell isn’t going to be anybody with a number

25 ranking!’



As global business converges, so agencies are belatedly mirroring the

trend. So much so that, in the early years of the next millennium, it is

predicted that the communications industry will be dominated by no more

than half a dozen holding companies.



Indeed, some agency pundits are convinced that keeping the D’Arcy and

Leo Burnett networks separate is a temporary measure and that the

war-chest created by BDM’s public offering will be used to achieve

economies through redundancies and to bankroll the purchase of another

network.



The reasons why big is becoming ever more beautiful are a combination of

past inertia, tardy attempts to satisfy changing client demands, the

need to manage conflict problems more effectively and self-enrichment on

the part of those running some of the largest players.



Not that empire building within the ad industry is new. The Saatchi

brothers began it in the 70s and, since the first agencies went public,

there has been a perpetual need to satisfy shareholder expectation. The

problem is that in order to counter relentless pressures to beat the

previous year’s results, the traditional options are being

exhausted.



’We have to deliver shareholder value and we can’t do that organically

at the rate shareholders demand,’ Michael Bungey, the Bates Worldwide

chief, explains. The answer? ’There’s only one thing you can do,’ Derek

Bowden, Saatchi & Saatchi’s chief executive, says. ’You have to

acquire.’



Interpublic, Omnicom and WPP, aided by a bullish US market, have already

blazed the trail others are now spurred to follow. But the early entry

of this trio into the race has given them an almost unassailable

lead.



Roger Edwards, the former Grey group chairman who is now a consultant on

mergers and acquisitions, says: ’They’ve got all their big pieces in

place which enables them to go for high-volume and high-quality

business. They’re streets ahead of anybody else.’



It is the growing power of multinational clients that is fuelling

mergers and dictating their future shape. Ford, General Motors and

Daimler Chrysler are lynchpin accounts within WPP, Interpublic and True

North respectively and exert huge influence.



Meanwhile, Interpublic’s move for D’Arcy is said to have been aborted

because of Mars’s uncompromising opposition to sharing a holding company

with Nestle. Moreover, a successful acquisition of D’Arcy by

Interpublic, a major repository of Unilever business, would have been

the first major test of Procter & Gamble’s more relaxed conflict

policy.



What is happening to the global ad industry is merely a symptom of a

much wider phenomenon. Driven by the growth of technology and

e-commerce, businesses are converging with retailers becoming banks and

Wal-Mart taking over the world. As a result, networks find it

increasingly hard to provide the diverse range of marketing services

demanded by these mega clients.



Consolidation is often the only answer.



’To operate effectively you have to be big,’ insists Brendan Ryan, the

worldwide boss of FCB, recently merged with Bozell by its True North

parent.



’Doing business with big guys gives clients a high comfort level.’



However, network mergers can mask fundamental weaknesses and are

sometimes no more than a cynical ploy to make a few people rich. ’They

just want to get out with a few million dollars in their pockets,’ one

network chief says.



Others believe agency marriages indicate the partners have run out of

ideas. ’Agencies get stuck,’ the Publicis chairman, Maurice Levy,

observes.



’They have no strategy and, without merging, they can’t move.’ Another

worldwide network chief says: ’Doing a merger can be very convenient if

you’re just stumbling along. It gives you a pass because it clouds your

financial results for the year.’



Michael Baulk, BBDO’s European head, believes the number of mergers only

emphasises the paucity of talent in multinational agencies and a failure

to get succession management in place. ’Size without talent goes away,’

he warns.



Nevertheless, size seems to matter as never before with industry

observers expecting merger activity involving the Bates, Saatchis, Grey,

Publicis, True North and - maybe - Young & Rubicam agencies within the

next 12 months.



The difficulty is in distinguishing the buyers from the sellers. For

example, Bates has been described as a ’limping, wounded animal’ but

Bungey insists he is a buyer, not a seller. ’We’re in great shape,’ he

says.



’But you never know what’s around the corner and we’ll examine all

approaches.’



One could be from Interpublic which may want to buy big again, having

reduced its number of networks through the merger of Lowe & Partners

with Ammirati Puris Lintas. True North has a well-filled war-chest with

which to buy itself out of the doldrums. Some, though, are not ruling

out a renewed bid from Levy whose options are looking increasingly

limited. ’If there’s an acquisition opportunity we will do it,’ he

says.



Grey, whose 73-year-old chairman, Ed Meyer, may soon want to cash in his

chips, could opt for an alliance with Saatchis, which has limited

amounts of truly multinational business, P&G being a notable

exception.



Meyer, though, remains an enigma. A former associate remarks: ’He hasn’t

plucked up the courage to buy and his low share price means he would

have difficulty paying with paper, but his age dictates the he can’t

remain independent for ever.’



Clearly, the feeding frenzy is far from finished. ’The fat lady hasn’t

sung yet,’ Mike Greenlees, the president and chief executive of TBWA

Worldwide, observes. Lorna Tilbian, the West LB Panmure analyst, is

equally gung-ho. ’We’re off to the races,’ she says.



This article was first published on campaignlive.co.uk

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