LIVE ISSUE/DENTSU: Dentsu and Burnett appear to be a perfect match They could both gain from a merger. So why are they waiting, Karen Yates asks?

For years, global eyes have been on Dentsu, the sleeping giant of Japan. Head and shoulders above the competition in its home market, but with virtually no presence elsewhere, it was always the ’one to watch’.

For years, global eyes have been on Dentsu, the sleeping giant of

Japan. Head and shoulders above the competition in its home market, but

with virtually no presence elsewhere, it was always the ’one to

watch’.



It was the agency which would have to do something - and for that read

buy something.



So earlier this year, when Dentsu announced it was going to raise a pile

of cash by floating on the stock exchange, speculation began to mount

that a big deal was in the offing. But with whom? Which of our stalwart

networks was to be tossed into the jaws of Japan Inc?



Bates and Saatchi & Saatchi looked ripe for the plucking after their

demerger in 1997. Or Young & Rubicam, perhaps, with whom Dentsu had

worked for a number of years in a joint venture.



Tantalisingly, Y&R also put 25 per cent of its equity on the block this

year by partly floating on the New York Stock Exchange. But Dentsu did

not bite, except to take a few paltry shares in what it called a

’friendly’ gesture.



Instead, Dentsu is pointing the finger at Leo Burnett. Last week it made

public the news that Dentsu’s president, Yutaka Narita, had been in

top-secret talks with Burnett’s chairman, Rick Fizdale, about the

possibility of buying a stake in the company - thought to be about 20

per cent.



Both sides stressed, of course, that this was not a prelude to a

merger.



It was just talks about the ’possibility’ of investing.



Shame. It seems a nice fit. Dentsu is looking for a network which is

strong in the parts of the globe where it is weak - notably the US,

Latin America and parts of Europe. It is also seeking an agency which

reveres long-term relationships, rather than making a fast buck. A

network which can help it transplant its vast and lucrative domestic

accounts into other parts of the world.



Dentsu also needs a partner to help it understand the mysteries of media

planning and buying in the West - one which is big enough to be

knowledgeable, but small enough to want a ’big brother’ tucked away

somewhere.



Burnett fits the bill on all counts. First, the two agencies share key

clients such as Procter & Gamble, McDonald’s, Coca-Cola and Philip

Morris.



Second, the privately owned Burnett realised last year that it needed to

spread its wings a little after a streak of bad luck saw several major

US clients walk out. Burnett - the ninth biggest network in the world -

also needs to escape the middle-ground fast, or face being squeezed out

by the big boys.



This is particularly true of media, where Burnett is openly seeking more

bulk and where talks fell through only last month with the fellow US

group, MacManus. Burnett was also rather late in recognising the

benefits of specialist advertising functions, such as below-the-line and

interactive, and would dearly like the funds to go on a buying

spree.



So Burnett, too, is looking for someone. Someone to provide cash so that

it doesn’t have to face the rigmarole of going public - or the

post-listing scrutiny. It wants a benign ’sugar daddy’. A

non-interfering sleeping partner, who would cough up and shut up, much

as Dentsu has done with CDP.



Which begs the question, what of CDP in this equation? CDP has been

billed, for the past few years at least, as the way forward for Dentsu

internationally after early attempts at expansion by the Japanese giant

failed. An earlier union between Dentsu and Y&R, for example, fell apart

everywhere except in Asia. A similar understanding, this time with the

French group, Eurocom, crumbled after only three years.



So the focus moved to London, where Dentsu had bought CDP and Travis

Sennett Sully Ross. From these bases, Dentsu believed it could

cherry-pick agencies in Europe and thus build its own network, slowly

and carefully in the time-honoured Japanese way.



But the trend towards globalisation waits for no man. Dentsu’s

snail-like growth in Europe - it still only has a handful of agencies -

is not fast enough given the pace of other mergers and the drive by

clients to work on a bigger canvas. More importantly, Japan’s

devastating recession has brought home that even the Japanese have to be

global to survive.



For now, of course, Dentsu’s big clients are defending the right to

choose their own agencies in each part of the globe. But it’s an

assertion tinged with pragmatism. Martin Sanders, the head of marketing

for Honda UK, believes there’s little pressure now to use a particular

advertising agency, but admits that things could change. ’Dentsu is a

corporate partner with Honda, and as a corporate partner it could have

an impact on the world stage in the long term,’ he says.



Sanders needn’t worry. He already uses a Dentsu agency, CDP. It’s those

brands which do not - Toyota, for example - who may have more thinking

to do.



Meanwhile, CDP is anxious to remind the world that it is still a key

player. Chris Macleod, CDP’s chief executive, says: ’Dentsu remains

totally committed to CDP and our development, both locally and

internationally.’ And Macleod promises more ’announcements’ in the new

year.



This is what you’d expect him to say, but he’s probably right. Dentsu

has openly declared its intention to run ’two or three’ different

networks. Why not have one built up slowly and surely from a European

base, and another developed more rapidly from a US-biased strategic

alliance?



Leader, p21.



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