World: Gloves off as Hakuhodo squares up to Dentsu

Japan's number-two agency hopes to raise 30 trillion yen as it goes public in a bid to challenge its rival.

When Hakuhodo DY Holdings Inc (HDY) announced its intention last month to float on the Tokyo Stock Exchange, the holding company's rival Dentsu was very clearly in its crosshairs.

With an initial public offering of 4,198,300 shares of its common stock, Hakuhodo expects to raise significant new capital for growth. Though the section and the price remain undecided, marketers suggest HDY's shares will be listed on the first section at around 6,300 yen, valuing the company at almost 30 trillion yen ($292.9 million).

While the IPO has dominated the Japanese business press, it doesn't come as much of a surprise to the Japanese ad industry. Haku-hodo first indicated its intention to list on the Stock Exchange in 2000. Asatsu-DK, the third-largest domestic advertising agency, has been listed on the TSE since its formation in 1999. Dentsu went public in 2001, piling pressure on the challenger Hakuhodo to follow suit.

However, the decision to float isn't just about the competition. One of the principal triggers for Hakuhodo DY to go public was the high value placed on corporate social responsibility within the Hakuhodo DY corporate culture.

The industry in Japan has been under constant public pressure to become more accountable in its transactions. Many observers believe that once the top three agencies have gone public, the entire industry will move toward more transparent business practices.

Hakuhodo DY Holdings was formed in October 2003, when Hakuhodo merged with Daiko and Yomiko, respectively Japan's second-, fifth- and sixth-ranked advertising agencies. The seeds of Japan's new advertising superpower had been sown two years earlier, when the three agencies combined their media arms.

The spur behind the formation of HDY was a bid to close the gap between the trio and the industry giant Dentsu, Japan's leading agency.

At stake was a greater share of Japan's $59 billion ad industry. In 2003, Hakuhodo had a 17 per cent market share in Japan, compared with Dentsu's 26 per cent.

Hakuhodo, Daiko and Yomiko became fully owned subsidiaries of HDY. But in a surprise move, the group then founded a fourth subsidiary - HDY Media Partners - a multi-discipline, standalone media agency integrating the agencies' media arms. Through this alliance, the trio have combined to overcome their weaknesses, creating tougher competition for Dentsu. Of the three agencies under HDY, Hakuhodo is by far the largest. Its non-consolidated sales for the year ending 31 March 2004 totalled 692.8 trillion yen, more than double Daiko's 152.6 trillion yen and Yomiko's 105.4 trillion yen put together. It's no surprise that HDY's culture and style follow the dominant Hakuhodo's lead, and the company is run by two former Hakuhodo chief executives, Taka-shi Shoji and Toshio Miyagawa.

Hakuhodo has always valued the concept of "partnership." The international concept of client conflict has not yet spread to the Japanese market, and Hakuhodo's corporate mission to become each client's "power brand partner" is unique. The agency is especially strong in the car industry, handling all of Nissan and Mazda's business and a share of Toyota's.

Internationally, HDY looks first to Asia as its key market, with offices in Bangkok, Shanghai, Hong Kong and Seoul. It has helped many of its clients set up shop in the region and is affiliated with Interpublic Group's Lowe and Omnicom Group's TBWA. But the company's foreign empire is small compared with that of Dentsu, whose partnerships with Publicis and joint venture with Young & Rubicam far exceed HDY's tentative steps on to foreign soil.

The holding company has not commented on how it intends to invest the funds created from its share offering, but industry analysts point out that the IPO will steer HDY on to a more acquisitive path in a bid to mount a credible challenge to Dentsu.

Whatever the company decides to do with the 30 trillion yen it raises on the Stock Exchange, the prospect of an agency with a culture as strong and unique as HDY's in a position to take on Dentsu will be an exciting one to watch.


1. Dentsu

Founded in 1901, Dentsu remains one of the largest advertising conglomerates in the world, and commands an impressive 26 per cent market share in Japan, employing more than 14,000 people. In 2004, it billed 1,749 trillion yen ($17 billion).

Dentsu has offices in 27 countries and a client list of more than 6,000.

A partnership with Young & Rubicam has seen Dentsu expand in Asia, and the agency has a 15 per cent stake in Publicis Groupe. The company completed its IPO on the Tokyo Stock Exchange in late 2001.

2. Hakuhodo

Hakuhodo boasts 26 regional offices throughout Japan. Until 2003, when Hakuhodo DY was formed, the agency was less than half the size of its rival, Dentsu. Since the merger, the company has acquired a series of small creative agencies, including Mustoes (UK), Damm Agentur (Germany) and Mendelsohn Zien (US). Now in its 110th year, Hakuhodo has a 17 per cent market share in Japan and posted annual sales of 692.8 trillion yen in the year ending 31 March 2004.

3. Asatsu-DK

Formed in 1956, Asatsu-DK is affiliated with, and partially owned by, WPP. The third-largest agency in Japan, it narrowed the gap between itself and the top two when, in 1999, it took over Dai-Ichi Kikaku (the DK in Asatsu-DK), then ranked seventh in Japan.

4. Tokyu Agency

Japan's fourth-largest agency is a subsidiary of the railway, retail and real estate conglomerate Tokyu Group. In 2003, the agency posted revenues of $182 million.

5. Daiko

Daiko was formed in 1944 as Kinki Advertising. After a merger of five agencies, it was renamed Daiko Advertising in 1960.