CLOSE-UP: NEWSMAKER/JEAN-PAUL MORIN - Publicis deal maker who is ready to give - a little. The financial brains behind the Publicis Bcom3 deal is no pushover

One morning last December, Jean-Paul Morin was preparing to have a few days' break from his part-time advisory role at Publicis. But the chief executive Maurice Levy had other ideas. "I want you to meet Mr X in New York tomorrow,

he announced.

"But I'm going away to Brittany for a few days,

Morin responded.

The next day Jean-Paul Morin was indeed meeting Mr X, but on his terms. He had delayed his holiday and Mr X had been persuaded to come to Paris. Mr X was Bcom3's chairman and chief executive, Roger Haupt, and the starting pistol had been fired for Maurice Levy's most ambitious negotiating marathon to date.

This episode says quite a lot about Morin. He's no pushover but he's also prepared to compromise for the greater good.

Morin's relationship with Maurice Levy goes back over 30 years, when Morin headed Mazars, the accountancy firm he had founded, where Levy was a client. Clearly Morin made a good impression. By 1984, he had been persuaded to give up his accountancy practice and join Publicis full-time, although Mazars continues to be the Publicis auditor today. Morin took over responsibility for all the financial and administrative matters and became one-half of a classic management combination - Levy had the strategic vision and flair, Morin handled the practicalities.

"Maurice has the dreams and ideas,

Morin says. "Then he turns to me and says: 'Help me do it'."

As a result, Morin has been in the thick of all the major deals, notably the joint venture with True North that came to a bitter divorce and which he describes in colourful warlike terms. "I led the defence against True North, including the legal action and arbitration process during 1998 to 1999, which we eventually won,

he says.

Two years ago, Morin handed the financial management role to Jean-Pierre Etienne with the intention of enjoying more free time. But Levy had other ideas. Morin continued as his special adviser on mergers and acquisitions and soon found himself creating the financial architecture for the Saatchi & Saatchi takeover. He enjoys the role as he is no longer preoccupied with financial administration, which he describes as "very boring".

What was Morin's first reaction to Levy's audacious plan to link up with Bcom3 and Dentsu? "I never thought it would get to a successful conclusion,

he admits. "It was a super dream - doubling the size of our operations -and I never thought we could do anything with Dentsu."

Talks with Dentsu over the years had indeed failed to lead anywhere but now things were different. Through the Bcom3 strategic alliance, Haupt already had the key to the Dentsu boardroom and was able to deliver that part of the deal to Publicis.

What were the biggest challenges? Morin says they were mainly to do with cultures, working styles, language and time differences. Dealing with people in Chicago, Tokyo and Paris would sometimes involve working right round the clock. "All the actors had their own interests and it was very difficult to find the right balance,

he says.

Those actors included Bcom3 shareholders, who were all past or present employees of that group, Dentsu, whose existing agreement with Bcom3 effectively imposed a negotiation deadline of 14 March, and Publicis' major shareholder Somarel. On top of that, Morin and the other parties had to satisfy a battery of regulatory obligations affecting the different players around the world.

Surprisingly, Morin does not include the agreement of financial terms as a major challenge, feigning a limited knowledge of the detail. For example, he says Bcom3 still has some negotiating to do about how the cash is divided up between continuing employees and those who are retiring, and he is not sure why the published agreement implies that everyone will get the same allocation of shares, loan notes and cash.

So how did Morin operate? "We did all the negotiations ourselves - Maurice, myself, Haupt and Craig Brown. Only when we had agreed heads of terms on 15 February did we brief the lawyers, accountants and bankers." He pays tribute to the teamwork of the foursome: "It was not good guy, bad guy, but a common search for the right business solutions."

Nevertheless, the closing stages had all the nail-biting characteristics of a movie drama: "We were due to make an announcement at 11am on 7 March, but the last hurdle was not cleared until 9am. We had no sleep, negotiating throughout the night. We were totally exhausted. It took a few more days before we could really believe the deal had been done."

What persuaded Dentsu to give up its right to buy out Bcom3 in full and build its own global network, and instead to pay out another $500 million to achieve a 15 per cent stake in the merged Publicis group? Morin suggests that being a partner in the enlarged global operation with a wider choice of brands offered Dentsu a more attractive playing field. Yet the deal also provides Dentsu with a bigger business inflow for its domestic operation in Japan where it enjoys higher profit margins.

The other big financial question is: why pay $3 billion for Bcom3? It reported a post-tax profit of just $26 million for last year, on the face of it making the multiple one of the highest ever paid. "You cannot look at this as an acquisition,

Morin argues. He says they examined "exchange ratios

such as the relative size of each group's revenues as well as operating profits before goodwill amortisation, tax and interest.

Admittedly, revenues were roughly equal last year with Publicis showing just a short lead. On that basis, given that Publicis had a market capitalisation of $3.7 billion at the time of the offer, it might even be argued that Publicis has not paid enough, although its shares deserve a premium rating because there is already a public market for them.

However, such financial gymnastics presume first that the Publicis share price is not already over-inflated, that both groups can achieve similar profit margins on their revenues (which they haven't so far) and that such margins will be competitive with other major global groups (which they aren't). It follows that a lot more profit will have to be squeezed out of Bcom3 for the deal to make financial sense, and even Publicis itself will need to do better in future.

Morin is unmoved by this discussion. He quotes "increased shareholder value

as the goal, a popular but ill-defined phrase that is commonly called in to justify demergers by major conglomerates or to explain away over-priced shares that seem to have no obvious financial justification.

He claims the deal will increase earnings per share in the current year, but Interpublic made a similar claim when it acquired True North last year and is now nursing a $505 million loss.

Confidence in Levy's lieutenants' ability to generate an adequate return on their recent acquisitions may be influenced by how well they have fared with Saatchis. The price tag for that group was roughly $2 billion, but the extra profit enjoyed by Publicis so far has been minimal.

"It's exactly on track to achieve our target,

Morin insists, while acknowledging there have been a few hiccups along the way.

"It has been very successful. We've not lost a major client and we've kept all the people we really wanted to keep.

He adds that the trick is to implement a little more management and cost control.

But then a chink appears in his armour. Morin says there are two important points to make in considering the adequacy of the return so far. First he argues that, although the value of the deal was about $2 billion at the time, the stock market value subsequently halved and therefore it would be more appropriate to compare the return with the reduced value.

Former Saatchis shareholders might have taken issue with that, as they reeled from the plummeting value of the Publicis shares they received in exchange, despite the fact that Publicis guaranteed - and therefore had to recompense them - for the first $175 million of that fall. It's like asking a creative director who has just experienced a 50 per cent drop in the value of the vintage Aston Martin he bought for £150,000 to ignore the fact that he's just lost £75,000.

So will Morin now retire back to his part-time role? "Not before the summer,

he says. A hectic period of paper-pushing lies ahead as the group handles the regulatory formalities of the European Union, the SEC and other local authorities. And after that, will there be any more big deals to do?

"It would be difficult to find something more exciting,

he says. "We have no more major holes in our capabilities, but we may still be looking to fill some very specific niches."

That should leave Morin with a little more time to make up for his lost holiday in Brittany.


Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus