CLOSE-UP: ANALYSIS/COMPENSATION AND CONSOLIDATION - Publicis and Bcom3 deal creates 650 millionaires

Bob Willott investigates the reality behind the payout figures executives receive.

On 25 September, Maurice Levy created up to 650 millionaires, as shareholders approved the acquisition of the Bcom3 Group. The 650 were all employee shareholders of the Bcom3 Group, which was put together from Leo Burnett and MacManus in November 1999. Publicis paid about $2.3 billion for its new acquisition, with the simple objective of buying its way to the top table of the industry alongside Omnicom, WPP and Interpublic.

Among the 650 or so lucky shareholders were the four key executives - Roger Haupt, Craig Brown, Richard Fizdale and Roy Bostock. Haupt and Fizdale came from the Leo Burnett stable. Brown and Bostock came from MacManus.

Between them these four will be enjoying about $240 million for selling their beneficial shareholdings to Publicis - although only $59 million will have reached their collective bank accounts so far. This is because much of the payment for their shares will be in Publicis shares or loan notes and, under the terms of the deal, they will have to wait 18 years before they collect the full amount.

Even the amount receivable is not set in stone. For example, Publicis has made it clear from the outset that there is no guarantee that the loan notes will be saleable at their face value - indeed, nobody is likely to buy them at anything but a substantial discount.

Another risk facing the former Bcom3 shareholders is that the Publicis share price will go down instead of up. According to calculations made by Marketing Services Financial Intelligence, the slide in share prices since the takeover was announced in March has already slashed nearly 23 per cent off the value of the deal as a whole, and the fall would have been greater but for a compensating movement in the exchange rate of the euro with the dollar.

Nevertheless, the fall was enough to wipe out much of the potential benefit to those Bcom3 employees who held only share options, rather than real shares, unless Bcom3 has made some internal adjustment.

As the industry bumps along the bottom of another depression, envious eyes may prompt accusations of greed about the Bcom3 bosses. But they are not the first to benefit from the growth ambitions of the major players.

Stories still reverberate around the industry of how Bob Jacoby collected more than $100 million for the sale of Ted Bates to Saatchi & Saatchi in the 80s, only to disappear from the business within months. The drama added to the destabilising influences that were already toppling Saatchi & Saatchi from its briefly held place at the top of the advertising world.

More recently, several Young & Rubicam executives enjoyed rich pickings from Sir Martin Sorrell's growth ambitions. The outgoing chairman, Thomas Bell Jnr, collected WPP shares or their equivalent worth the best part of $135 million, and the current Y&R chairman and chief executive, Michael Dolan, collected more than $40 million. The main beneficiaries agreed to defer sale of some of their shares for a fairly brief period. Some of them had also been careful to sign up new contracts with Y&R beforehand to ensure they enjoyed golden parachutes if they were forced to bail out of their management roles.

No wonder enterprising young advertising executives dream of creating their own agencies and selling them on at mind-blowing prices within their own lifetimes. It wasn't quite like that in J. Walter Thompson's day.

But there is a difference between selling shares acquired on very favourable terms and selling those that were acquired at a fair value. For example, who would begrudge an agency founder - who puts his career and house on the line to launch the business - accepting an over-priced offer from a determined acquirer?

At Bcom3 many of the shares were acquired over the years in lieu of other forms of profit-sharing. In the early days, the profits of Leo Burnett could have been extracted by Leo himself, but instead he shared the fruits of success with some of the other staff.

Today staff shareholders have been exceptionally lucky, receiving an average of $3 million because Maurice Levy needed Bcom3 and was prepared to pay what seemed like a ludicrously high price for a business that needed more strategic clout to secure its future. And, unlike some companies, at Bcom3 the proceeds are being widely shared.

Admittedly, some of the former MacManus executives had been eager to make a killing on their shares for some while, whether by a public flotation or sale. Nevertheless there can be no sale without a buyer, and they would probably never have found another buyer as generous as Publicis.

A more critical view might be taken of some US share incentive schemes.

Many of the shares are gifted and often the criteria for acquiring them are questionable. Recently, Omnicom's John Wren was granted 1.5 million stock options geared entirely to growth in the share price. In other words, if he satisfies the investment community's thirst for ever-increasing short-term returns - irrespective of how he does it - he becomes even wealthier. However, things haven't started too well in that regard.

But spare a thought, John, for the longer term needs of these businesses, whose assets come and go in the elevator each day and whose desire to feel valued for their creativity and market effectiveness is not always compatible with your type of financial motivation. They may decide to go down your elevator for the last time just when you need them most.

- Bob Willott is the editor of Marketing Services Financial Intelligence (www.fintellect.com) and a special professor at the University of Nottingham Business School.

THE BIG SHARE PAYBACKS

THE DEAL THE PRINCIPAL THE PACKAGE

Ted Bates Worldwide Bob Jacoby $100 million(1)

acquired by Saatchi &

Saatchi (1986)

Young & Rubicam Thomas Bell Jnr $135 million(2)

acquired by WPP Edward Vick $97 million(2)

Group (2000) Michael Dolan $42 million(2)

Stephanie Abrahams $41 million(2)

Bcom3 Group acquired Roger Haupt $240 million

by Publicis Groupe Craig Brown between them

(2002) Richard Fizdale

Roy Bostock

Approx. 650 other $1.8 billion

Bcom3 employees between them

Notes: (1) Based on press reports; (2) Estimate based on shareholdings

as disclosed prior to deal.