Sorrell warns Lévy against buying Chinese agency Oriental & Rende

February 28, 2012

In an extraordinary new twist to the Oriental & Rende story I posted the other day, WPP chief executive Sir Martin Sorrell has written to his counterpart at Publicis Groupe, Maurice Lévy, warning him of the dangers of acquiring the Chinese specialist car agency.

Last year, I’m told, WPP subsidiary Ogilvy broke off acquisition talks with O&R after it emerged that the agency – whose main client is VW, Mercedes and Hyundai joint-venture partner FAW – was operating both outside Chinese law and accepted ethical practices. The problem seems to involve under-the-table payments, totalling several million dollars a year, which are being paid to the client management in order to retain business.

It is believed that, in his letter, Sorrell appealed to Lévy’s sense of fair play and emphasised the need for a corruption-free level-playing field in the international advertising business.

Corruption, knowingly or unknowingly, committed in foreign markets is now a major corporate headache. Under section 7 of the UK Bribery Act 2010, it is an offence for commercial organisations registered in the UK, or carrying out business there, to fail to prevent bribery taking place. The burden of proof is on the indicted company to demonstrate that it had adequate anti-corruption controls in place at the time of the offence’s commission. Punishment on conviction ranges up to a 10-year prison sentence and unlimited fines. France has similarly tough anti-corruption legislation governing overseas subsidiaries, involving heavy fines and potential imprisonment.

Whether Sorrell’s letter – to which Lévy is believed to have replied – will have any impact on PG’s decision to buy O&R remains to be seen.



Publicis Groupe moots deal with Chinese auto specialist agency Oriental & Rende

February 25, 2012

You’ve got to admire the mettle of the man. Publicis Groupe chief executive Maurice Lévy may have his hands full with a corruption scandal at Betterway, one of PG’s principal Chinese subsidiaries, but his appetite for acquisitions in that part of the world is undiminished.

It has come to my attention that PG is close to striking a deal with a Beijing agency called Oriental & Rende. Never heard of it? I’m not altogether surprised. It’s a smallish specialised agency with revenue estimated at $10m in 2011. But don’t underestimate its strategic significance. This is a way into the booming “Made in China” car business. O&R does what used to be called through-the-line work (advertising, PR, events etc) for many of the Chinese automobile joint-venture companies. Its biggest client by far is FAW, which is allied to VW, Mercedes and Hyundai.

It is believed that WPP earlier showed interest in acquiring O&R but, for reasons which are not yet apparent, decided to pull out of discussions.


Strong Interpublic financial results swell optimism in global ad recovery

February 24, 2012

Things really must be getting better in the global advertising economy, the cynical might observe. Interpublic, the world’s fourth-largest and most financially challenged advertising conglomerate, has just reported a decent set of Q4 results.

Despite a heavy kicking from principal clients SC Johnson – which quit after decades at IPG subsidiary DraftFCB – and Microsoft – which withdrew all its media strategy and planning business from media powerhouse Universal McCann – IPG was able to report profits (net income) up nearly 40% (50 cents compared with 36 cents per share) on revenue slightly ahead at $2.07bn.

Admittedly IPG chief executive Michael Roth was wary of calling a recovery. “We have some local wins and some existing clients spending money, but I wouldn’t say that the recovery is taking hold and we’ve seen bottom,” he said during the conference call.

But that cautious scepticism was surely belied by his assertion elsewhere that the company is setting out on the acquisition trail.

Besides, a slew of uplifting data elsewhere seems to suggest that IPG’s positive figures are not an isolated anomaly. Publicis Groupe and Omnicom, respectively numbers 3 and 2 in the world, have already posted Q4 results ahead of analysts’ predictions. WPP has yet to report, but there is no evidence the results will be grim. On the contrary, I have every reason to believe pre-tax profits and revenue will be well ahead of analysts’ expectations.

More circumstantially, but no less significantly, the US Advertiser Optimism Index – roughly equivalent to the IPA/BDO Bellwether Report over here – has just reported the second-highest level of confidence in ad budgets being raised since 2008. The index, published by research company Advertiser Perceptions, measured the sentiment of advertisers and agencies during October and November.

Finally, UK-based WARC has just produced a report suggesting America is leading the world out of (ad) recession. “Marketing spend in the Americas increased sharply in February,” it noted in an update to its monthly Global Marketing Index. Even doldrum European ad markets are experiencing “improving conditions”, it seems.

Let’s hope IPA/Bellwether doesn’t spoil the party with its next quarterly report, which must be coming out quite soon.


Tamara Minick-Scokalo resurfaces in top role at Pearson

February 22, 2012

The career of high-flying international executive Tamara Minick-Scokalo has, it seems, become a staple feature of this blog. So it might be of interest to note that she has just landed another top job.

Pearson, owner among other things of The Financial Times and Penguin, has picked her as president Europe, Middle East, Africa and the Caribbean of its education business.

Minick-Scokalo, who is currently based in Geneva, has had a somewhat chequered résumé in recent years. Twenty years into a marketing career at Procter & Gamble, she briefly switched to senior European marketing roles at EJ Gallo and Elizabeth Arden before surfacing at Cadbury as head of global commerce in 2007. That move was a success, but the subsequent appointment to president of Cadbury Europe was not: she left less than a year later. Only to emerge triumphant and phoenix-like, in 2010, as the new president of chocolate Europe, following Kraft’s takeover of Cadbury.

But the title was an illusion, and carried much less weight than her previous operational role at Cadbury. Minick-Scokalo – like other senior ex-Cadburyites – seems to have found Kraft excessively bureaucratic and the idea of a career centered in Zurich frankly unappetising.

She left less than 6 months later, and – interestingly for such a corporate creature – set up as an entrepreneur. Trax, which is what she founded, is an IT/sales and marketing operation specialising in retail. What will happen to it now, I have no idea.

The international education division, headed by chief executive John Fallon, is viewed as one of Pearson’s most aggressively expanding operations. It has made several large scale acquisitions in recent years, including the Wall Street education business and the China-based Global Education and Technology Group. Minick-Scokalo clearly has experience of corporate integration at the highest level. Nevertheless, her marketing pedigree is probably more in demand at Pearson.


Publicis Groupe raids top Chinese shop Betterway after corruption scandal

February 20, 2012

News reaches me that Publicis Groupe has raided one of its most important marketing services outlets in China, after corrupt practices came to light.

Betterway/Publicis Dialog, the outlet in question, is China’s largest field marketing network, with offices in Shanghai, Beijing, Chengdu and Guangzhou.

The company is said to have raided its subsidiary last week and to have sent all staff home. Arrests are rumoured, but unconfirmed.

The driving force behind Betterway is CEO York Huang, a former Procter & Gamble executive, who joined the company in 2001. In 2006 PG acquired an 80% stake in Betterway. Huang and junior partner Jenny Zhang remained minority stakeholders.

Two years ago, PG claimed Betterway had 346 full-time employees and 15,000 part-time staff operating in over 100 cities. Principal clients include Wrigley, Kraft, Microsoft, J&J, L’Oréal, Coca-Cola and Samsung. Betterway won a substantial contract from China Mobile and China Telecom to represent them at the high-profile 2010 Shanghai Expo.

What has gone wrong? It seems that despite the Chinese marketing services economy growing at over 10% a year, some just can’t get their hands on enough money. The speculation – and I stress that it’s no more at this stage – is certain senior Betterway executives created a ‘shadow’ agency which then pumped revenues into Betterway in order to inflate revenue, and thereby substantially boost their earnouts.

Publicis has had problems dealing with corrupt practices in its Chinese operations before, of course. Readers of this blog may recall that, in September 2010, it fired Vivaki Exchange’s chief executive Warren Hui and general manager Ye Pengtao .

More on the Betterway story when I have it.


The bottom line of Carat’s $3bn General Motors win – no profit for 2 years

February 19, 2012

Say what you like about Joel Ewanick, General Motors’ global marketing supremo, he knows how to drive a financial deal.

The terms on which he vested Carat with the consolidated $3bn global media planning and buying account (minus BRIC countries Brazil, India and China) are now beginning to emerge.

And do they squeak. If what I hear is right, Carat – a subsidiary of Aegis Group – will not receive any profit on the account, which it recently wrested from Publicis Groupe’s Starcom operation, for a full 2 years. GM has agreed to pay no more than labour costs during that period. What’s more, it’s not going to part with a dime before Carat North America, which is handling the new business, is fully staffed up. Formally, Carat takes on that business (it already handles the $600m European account) in June this year.

Not surprisingly, making the arithmetic add up is causing Carat a few headaches. And not just Carat. Starcom has between 230-250 full-time staff running the North American business (the bulk, in global terms). Carat apparently expects to carry out the same tasks with a full-time complement of 175, or about three-quarters of the Starcom team. Starcom’s Detroit media folk, many of whom will have been hoping for continuity of employment through taking the Carat shilling, must now feel as if they are being poured from a quart- into a pint-pot.

So, when we hear Aegis Media Americas CEO Nigel Morris saying of the Carat win: “This is a defining moment for our business and the market. We have designed our organization for convergence and globalization. We have a clearly differentiated operating model that is focused on reinventing the way we work with our clients and their brands. From the outset it was evident that the GM team was looking for a transformative approach with innovation at the core,”  – we now know exactly what he means.

Necessity is, after all, the mother of invention.

For sure, the $3bn account is a totemic win for Aegis – going well beyond its immediate financial calculus; every prospective client likes a winner. But Carat is going to be pedalling hard all the way up the hill to make this deal work.


Dentsu delivers the coup de grâce to its strategic alliance with Publicis Groupe

February 17, 2012

The only surprise about the dissolution of the Publicis Groupe/Dentsu strategic alliance is the speed with which it has happened. Less than two weeks ago, PG chief executive Maurice Lévy was telling shareholders he couldn’t pay them a better dividend because he had to hoard every last euro in case the Japanese wanted their money back.

In point of fact, the decision to terminate must already have been made, even though the strategic alliance of 10 years still had some months to run. This morning, Dentsu announced it had sold almost all its remaining 11% shareholding (and 15% voting rights) back to Publicis for €644m (£535m). Dentsu retains a 2% stake for the time being, but it’s of little consequence.

Dentsu made a profit of £17m on its investment. Small recompense – it must be said – for a strategic alliance which, from the Japanese point of view, has been largely a sham.

Right from the beginning, Dentsu found itself wrong-footed. It originally founded the alliance with BCom3, a combination of Leo Burnett and MacManus Group, only to find that Publicis had crashed the party by acquiring BCom3. Where previously it might have expected to play a more preponderant role, the addition of Publicis fundamentally changed the balance of power. And reduced Dentsu to an (even more) passive role as a minority shareholder in PG, albeit with some powerful voting rights.

Stripped to essentials, the alliance was supposed to bolster PG’s then-weak position in the Far East, and supercharge Dentsu’s underperformance in North America and Europe.

In practice, it was very much more favourable to Publicis, which had in any case benefited from a massive injection of cash to bankroll acquisitions.

Most mortifying of all, Dentsu eventually found itself not only in direct competition with its ally for scarce North American digital assets – but coming off worse. Notably in the case of the Razorfish acquisition, where Dentsu put a heady $700m on the table, but was swiftly outplayed by Publicis – which enjoyed an inside track with the then-owner of the digital agency, Microsoft, and irritatingly managed to buy the agency for a lower price.

Dentsu soon signalled its growing disenchantment by forcing a sale of 4% of Publicis stock for €218m. Not long thereafter, it showed new and uncharacteristically aggressive intent in Western markets with the unveiling of Dentsu Network West – captained by US Dentsu chief Tim Andree. Where, for years previously, Dentsu had got things spectacularly wrong in the USA, Andree has got at least one big thing spectacularly right. Had he done no more than acquire McGarryBowen – feted by both AdAge and AdWeek as their current agency of the year after a string of high-profile business wins – Tokyo would have good reason to be hugely grateful to him.

In short, Dentsu has outgrown its foreign markets inferiority complex, which gave birth to the alliance in the first place. While Publicis now has an urgent reason to dispose of the corpse as soon as possible. Whoever eventually takes over the hot-seat from Maurice Lévy would have little thanked him for bequeathing them an embittered major shareholder.


“Not for sale” StrawberryFrog sold – to PR agency APCO

February 16, 2012

StrawberryFrog – the maverick advertising micro network – up for sale? Come again?

When, late last year, I had the temerity to claim that was indeed the case, SF founder, chairman, chief executive and great panjandrum Scott Goodson took venomous issue with my impudent suggestion.

Yet, less than 3 months later he has done just that – sold out. More specifically, APCO, a PR agency specialising in crisis management, has acquired a controlling interest in the financially troubled New York agency. (It is not yet clear how the sale will affect SFNY’s freewheeling Amsterdam counterpart.) The sale comes hot on the heels of news that Goodson has also parted company with the only profitable part of his organisation, StrawberryFrogPeralta, in which he held a 30% stake.

The spin on the APCO deal is that it is an inevitable sign of the times. As digital becomes the key communications channel between marketers and consumers, the traditional lines between PR and advertising are being extinguished. If anything, PR is culturally more sensitive to the “conversational” requirements of social media than advertising, but often lacks the technical expertise to be found in advertising agencies. Consequently, many PR firms have taken to hiring Madison Avenue creative executives over the past few years.

StrawberryFrog is indeed an accomplished expert in digital creativity. Goodson and his co-founder and fellow Canadian Brian Elliott (once best friends, who set up the company on Valentine’s Day, 1999, but later spectacularly fell out) early realised that strong creative ideas combined with digital know-how was a winning way of undercutting the big agencies, tied as they were to the bureaucratic “account team” legacy of traditional advertising.

And for a time, they were spectacularly successful. Even today, nearly 4 years after Elliott broke away, StrawberryFrog can boast a client list that includes Procter & Gamble (Pampers), Emirate Airlines and bourbon-maker Beam Inc.

But it is also a troubled agency, headed on a downward financial spiral and suffering from an unenviable reputation as a place to work (not least because of Goodson’s mercurial temperament).

Last year, I reported that agency staff had been cut from 76 to 40 in New York, while revenues had plummeted from $17m in 2010 to an estimated $12m in 2011. In the event, that last figure has proved a bit conservative – The Wall Street Journal cites $10m revenue. So, while Goodson may be quite right in asserting that the APCO deal will “give us the ability to work with clients in more markets around the world” (APCO has about 30 offices), it’s also true to say Goodson had to sell – or else suffer financial disaster.

APCO will be wise to treat its new acquisition with kid gloves. As one source familiar with StrawberryFrog put it to me: “Placing a value on this agency will not have been easy. What’s the IP value? How are they going to deal with the reputation issue? And has outstanding litigation with former staff been settled prior to the deal being signed?”

One thing APCO won’t have to worry about in the short-term, however, is dealing with StrawberryFrog’s prickly CEO. I understand he’s rather busy at the moment promoting his first book: “Uprising: How to build a brand and change the world by sparking cultural movements”. Perhaps some unintended irony in that title, the way things have turned out.


Will the last unindicted Sun journalist please turn out the lights?

February 11, 2012

A News International spokesman tells us Sun editor Dominic Mohan is “not resigning” in the wake of 5 more high-profile arrests of his senior colleagues.

Well, thank goodness for that. Someone has to be there to switch off the lights, and there now seem precious few editorial staff of any standing who aren’t on bail, or facing the threat of arrest.

The climate of fear at The Sun is, it would seem, being deliberately intensified by the police, in the hope of breaking NI’s culture of omerta and persuading more witnesses to squeal on each other. What other interpretation can be placed on police commander Sue Akers’ decision to organise the two waves of arrests, a week apart, as high-drama “dawn raids”, timed to coincide with Sunday newspaper interest? Whatever these men may or may not have done, they are not gun-runners, drug-traffickers or international terrorists. So why the heavy-handed police choreography, if not to a) impress the public that the police are at last getting tough on corruption and to b) create maximum distress among the people at NI?

As the web of alleged corruption spreads to more police officers, the army and the ministry of defence, it has emerged that Rupert Murdoch will be making a special pilgrimage to The Sun offices to personally reassure its staff he will not be doing unto them what he earlier did to their colleagues at the News of the World.

Maybe not, for now. But one thing I suspect we won’t be hearing much of from here on is Son of NoW, the Sun on Sunday. The Sun is a broken brand.

The latest wave of arrests will also put pressure on other parts of The Sun’s ultimate owner, News Corp. It could turn the screw on a Federal investigation into alleged racketeering. And, nearer home, it will surely rekindle calls for an investigation into News Corp being a fit and proper holder of a TV licence. Should BSkyB’s share price be seriously depressed as a result, you can be sure that – for all their stalwart support of James Murdoch up to now – the board will have no compunction in firing him as chairman.

UPDATE 18/2/12: First, some humble pie. “One thing we won’t be hearing much of from here on is the Son of NoW, the Sun on Sunday”. Er, no. Rupert Murdoch has just given his personal assurance that the launch will go ahead “very soon”. Industry experts believe this means some time in April, possibly the 29th.

However, what may play well with demoralised Sun staffers is not guaranteed to be a publishing success. Particularly if more distracting scandal damages the Sun brand in the meantime. And who, given the unbridled brief of the MSC to cleanse the Augean Stables at News International, can say it will not?

Labour MP Chris Bryant, who has been leading the anti-hacking campaign in parliament, neatly expresses the commercial paradoxof an SoS launch: “He (Murdoch) is meant still to be ‘draining the swamp’ and yet the swamp is meant to produce another newspaper.”

As it happens, Murdoch seems to have lost his sureness of touch in the realm of newspaper launches. His foray into the London freesheet market, with thelondonpaper, certainly did financial damage to Associated Newspapers, owner of London Lite and (at that time) the paid-for Evening Standard. But News International lost heavily on the project and eventually had to close it down.

The SoS will be launching into a rapidly declining market. Ad revenue was down over 17% last year (end of January) and – even stripping out the now-folded News of the World – the underlying slide was 11%. Readers are deserting too. And their contribution, in the form of circulation revenue, is even more vital to mass-market tabloids than advertising. The only way in, it would seem, is a price-war. That may well damage the SoS’ prime adversary, the Sunday Mirror. But whether it will create a financially viable Sun on Sunday is a moot point.


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