Aren’t some Outdoor Plus shareholders compromised by a conflict of interest?

February 22, 2013

Marc MendozaThere’s a lot going on under the radar in OOH – or posters, as we anciently called it. And I’m not simply talking of Omnicom’s Eric Newnham-fronted effort to crash the charmed circle of UK specialist buyers – namely WPP-owned Kinetic and Aegis-owned Posterscope.

No, what caught my eye recently was something entirely different. It concerned premium digital site owner Outdoor Plus and its opening of yet another of the landmark London locations in which it specialises – in  this case The Spire, a 20 metre-high construct unmissably situated on the A40 exit from London.

The PR spiel, as conveyed in MediaWeek, was suitably gushing: access to a dedicated commuter and business audience; balanced male:female ratio; 60% ABC1; capable of targeting traffic both in and out of central London. What more could an advertiser ask for?

Very little, according to an excited Grant Branfoot, Outdoor Plus’s sales director: “The potential for advertisers is vast and through the addition of The Spire to our expanding digital portfolio (it includes The Eye in Holborn, the Euston Road Underpass and Vauxhall Cross), we think we can help advertisers exploit the immediacy, the creative possibilities and the opportunity for highly targeted messaging which is associated with large format outdoor digital screens.”

The potential for advertisers is vast, is it Grant? More correctly, the potential for some, carefully selected, advertisers is vast. Many will likely get scarcely a sniff of a placement. The reason is somewhat complicated, and to do with Outdoor Plus’s curious shareholding structure. But don’t go away, readers. It’s worth the wait, really.

Outdoor Plus is a reasonably sized, reasonably well-run private company founded in 2006 by Jonathan Lewis – who remains its managing director. Turnover was about £15.42m in the year to December 31, 2011 – the latest financial figures recorded in Companies House. Group operating profits – of which Outdoor’s comprised the vast majority – were £1.8m, allowing the six directors to award themselves collective “emoluments” (or fees) of about £770,000.

The roll-call of these directors makes interesting reading. Among them are Philip Andrew Georgiadis, daytime job: chairman of Walker Media; and Marc Sydney Benjamin Mendoza, better known as head of Havas Media UK. In other words, principals of notable media-buying organisations whose job it is, inter alia, to oversee without fear or favour the negotiation of the most advantageous placements for their clients on UK OOH sites.

Turn to the share structure of the company and things get even more interesting. It emerges that Georgiadis is also a 5.3% shareholder in Outdoor Plus. Mendoza (pictured) owns just a shade more. And then there’s Mendoza’s cousin and, technically, his boss, Havas Media UK group head Mark Craze, who owns 3.2%. But we’re not quite over yet, because Stephanie Gottlieb, wife of Colin Gottlieb – the EMEA chief executive of Omnicom-owned OMG – also owns 1%.

Now I’m not suggesting anything illegal is going on here. At one level, you have to tip your hat to Lewis, who has been extremely shrewd in persuading these media luminaries to come aboard, thereby – shall we say – reinforcing his revenue stream.

Indeed, even if the shareholding of the Havas, Walker and OMG representatives were to be combined, they could hardly be accused of concert-party style manipulation.

None of that, however, quite expunges the whiff of conflicting interest surrounding this cosy media buy-side/sell-side coalition. Clients whose accounts are not held by Havas, Walker or OMG may well be the losers. And those whose accounts are need to be assured that they are getting the very best deal for all the right reasons.

Senior media executives, like Caesar’s wife, should be above suspicion.


InterPublicis Groupe – who would run it?

August 3, 2012

The market, as I said last week, is awash with rumours that Publicis Groupe is about to pounce on poor old Interpublic.

No, really – seriously awash. So much so that IPG stock had jumped more than 10% to $10.87 when I last looked, on speculation that PG is considering a $15-a-share paper-and-cash knock-out deal which would value IPG at $6bn. Rothschild is said to be working feverishly behind the scenes with other banks.

And IPG, what is it saying? “It is our policy not to comment on market rumors or speculation.” So, that might be a yes then. Publicis Groupe? Impenetrable silence. The rumour has got the investment community hooked, that’s for sure:  “We think the reports are credible,” Pivotal Research Group analyst Brian Wieser tells us in a research note.  Wieser is a former Interpublic executive who worked at its MagnaGlobal arm.

But how credible? Sure, from a financial engineering point of view it looks plausible. It would catapult Publicis Groupe to second largest marketing services group by revenue, behind WPP – creating a spectacular rejoinder to Dentsu’s stunning $5bn takeover bid for Aegis. And mean that PG pdg Maurice Lévy could exit the stage after a high ‘C’ that cracks all the chandeliers.

Client conflicts? Not as bad as they might seem at first sight – given the size of these two behemoths. For example, they share L’Oréal and Nestlé; they have shared General Motors. On the other hand, I wouldn’t have minded being a fly on the wall when Paul Polman, CEO of Unilever, and Robert McDonald, CEO of Procter & Gamble, first heard the rumour. It’s not just a question of client conflict – the two rivals reputedly loathe each other.

But here’s my real question. Who is going to run the new show? A sophisticated French adman who is too old and keeps telling us he is about to retire? Or a US former corporate lawyer (step forward Michael Roth) whose track record in running a publicly quoted marketing services company is at best indifferent? Would anyone except a Frenchman be allowed to run such a company, given that Publicis Groupe is such a national treasure? And if a Frenchman, who has the stature?

Over two years ago I flagged up the possibility of just such a merger. Then, like now, IPG’s share price was depressed and the moment seemed opportune.

At that time, PG had recently acquired an expensive M&A expert from Goldman Sachs called Isabelle Simon, whose skills were exactly matched to crafting just such a financial operation. And the PG succession crisis seemed a lot less pressing than it is today.

Simon clearly got fed up waiting. Last year she defected to a Monaco gambling organisation.

UPDATE 6/8/12: It turns out IPG bid fever is no more than a symptom of mid-summer madness. Publicis has released, tardily it must be said, the following statement: “Publicis Groupe denies having engaged in any discussions with Interpublic Group of Companies and confirms that it has not commissioned any bank to undertake any such discussions.” There is of course room to manoeuvre within the terms of this statement. Notice, for example, that Publicis does not exclude the possibility of having planned such a bid, merely having “discussed” it with IPG or one of its investment intermediaries. Nevertheless, the denial puts the dampers on a merger which, these days, doesn’t add up so compellingly for PG.


Is Ipsos poised to buy Synovate from Aegis for €550m?

May 20, 2011

A rather interesting rumour is doing the rounds of the City. And it is this: Aegis, the media buying group, is about to divest its market research operation, Synovate, for a princely €550m (£481m). The lucky recipient? Paris-based global market research empire Ipsos.

While I have no idea whether any deal will go through, let’s say it’s not a surprise that the two parties should be talking. After all, we’ve been here before – or at least, somewhere very nearby.

Back in 2009, Aegis launched a formal strategic review to determine whether or not to sell Synovate. At the time, GfK was felt to be the most likely buyer. GfK – privately held but the world’s fourth largest MR group even so – was still smarting after it came off second best to WPP in the acrimonious £1.1bn bid battle for Taylor Nelson Sofres.

But it might just as well have been Ipsos, the fifth largest, that was doing the talking. Both MR groups are in the grip of the same strategic imperative: they need to grow bigger in the wake of the 2008 TNS deal, which catapulted WPP to near top position in the world market research league table, just behind Nielsen. The consolidation question is not a ‘whether’ but a ‘when’.

What’s more we know the Ipsos management team admires Synovate and believes it would be a good fit. Don’t just take my word for it. In late 2005 Ipsos’ chairman and chief executive Didier Truchot publicly described Synovate as “a very nice and dynamic organisation.”  Of course, he didn’t go so far as to say he would actually buy it. Then again, he didn’t say he wouldn’t. He merely pointed out that it was “a little too early” to entertain such a possibility.

Truchot was at it again in 2009, when announcing a robust set of results for the previous year: he danced around the idea of buying Synovate without actually saying it.

Perhaps five-and-a-half years has proved long enough to mature his plan.

All of which does little to shed light on Aegis’ motives for selling the business, if that is what it is doing.

Admittedly, the market research division is currently an underperformer. In the latest, Quarter 1, financial results, the Media division turned in an impressive 10.1% improvement in sales, well ahead of the 7% analysts had been expecting. Synovate, on the other hand, undershot, if only by a small amount.

Furthermore, divestment would provide more ammunition in the war-chest. Aegis chief executive Jerry Buhlmann has already embarked on a strategy of shoring up Aegis’ position as a pure-player global media buyer with the £200m acquisition of Mitchell Communications.

But there is a wild card in all of this. What of 27% Aegis stakeholder Vincent Bolloré? Despite his very public disavowals of any further interest in a takeover, Aegis would surely become more, not less, tempting as a target. After all, what Havas – of which he is president and the principal shareholder – most needs is a more effective media buying operation.

UPDATE 6/6/11: Evidently the rumour was true: Aegis has just confirmed it. What matters, now the veil of secrecy has been stripped from the talks, is whether Ipsos is allowed a clear run at the acquisition. Or will others, such as Publicis Groupe, barge in with better terms? Anyone interested in the financials (Ipsos is about twice the size of Synovate) might care to look at Bob Willott’s newsletter on the subject.


Will Ofcom media-buying probe lift the lid on a can of worms?

April 6, 2011

Good luck to Ofcom as it attempts to prise the lid off the £3.5bn TV media-buying market and explore the wriggling multi-form life within. It really is a can of worms, and one most people in the business, most of the time, would prefer to keep firmly closed.

Their motives differ. Clients, despite the high-minded calls coming from their trade body ISBA for greater industry transparency, tend to find the subject stultifyingly boring. One indefensible reason for this is their personal unwillingness, or inability, to grasp the Byzantine complexities of the trading system. You might as well ask them to brush up their Latin as describe in detail the iniquities of media-owner  rebates. More pragmatically, they argue they have better things to do with their time – such as steering the strategy of their brands. Media negotiation is a matter for experts (on all sides) who understand the language, is it not? All you need to do is put a lesser amount on the table every year, screw down the terms with your agency even further, and get an auditor to establish that, at the year end, you have achieved still greater value for money (spuriously expressed in “media currency”  terms, not ROI) than the year before. If you haven’t, well maybe it’s time to fire your agency.

Media owners and agencies, on the other hand, are intimately aware of distortions in the system caused by such recondite issues as “pooled buying”, “agency deals” and “rebates”. And so they should be: these distortions, and the cloud-cover (or lack of transparency to the outsider and the regulator) that accompanies them, are what allow them to game the system.

Would a more open system be more effective than the present regime, for all its imperfections? Not necessarily. Better regulation does not inexorably lead to better business.

The fundamental criticism of the current system is that ads/spots end up going to the media owner who offers the best agency incentive rather the best fit for the client’s brand. The fundamental problem facing any reformer attempting to redress the balance is agency remuneration.

It might seem that media-buying agencies are in an incredibly powerful position. Indeed, in some ways they are. Ten buyers owned by six international agency groups – WPP, Publicis Groupe, Omnicom, IPG, Aegis and Havas – are responsible for about 80% of the money spent on UK commercial television. A comparable oligopoly dominates press, magazine and (under the guise of agency specialists), outdoor buying. The concentration of their market power is now, arguably, greater than that of the clients they serve, or the media owners they negotiate with.

Not surprisingly, these media buying groups are critical to the profitability of the agency groups that own them. As a recent article in The Guardian pointed out, something like £43bn a year passes through WPP alone (admittedly the largest global operator) on its way to media owners – which is more than the GDP of Ecuador. The treasury and cash-flow advantages cannot be overestimated. Equally, let’s not forget profitability. A media buying house on song has an operating margin of up to 25% which, given the scale of its operations, makes it the single most important component in any of the big agency groups.

But with power comes a surprising vulnerability. When agency network bosses promise their shareholders – as they do every year – enhanced performance, the first place they come looking for it is in their media-buying cash cows. Yet that profitability is built on foundations of sand. The days of 5% commission are long since gone; the equivalent of 2-2.5% would now be nearer the mark, as client procurement tightens the noose. And then there are complications, like a part of the deal being based on payment by results. The net result is greater reliance on financial compensation from the media owner: in effect, the use or abuse of market power to screw down the ratecard.

Most notorious of these Spanish practices is the discount, and the easiest way of looking at how it operates is with national newspapers. Agency media buyers are bonused on achieving a set reduction (10% for argument’s sake) not from the ratecard itself, but from the per page mean figure of all titles established in the last audit. Clearly it’s easier to negotiate a discount with a weaker player. The danger, from the client’s point of view, is that the ad ends up not in the title with the best audience profile or which boasts the most robust circulation, but in the title that has offered the best deal to the media buyer (which then collects its bonus). This market distortion has an ironic multiplying effect, given that most national newspapers are in the grip of structural circulation decline: the strong get punished, while the weak get weaker.

Murkier still is the incentive, a media-owner inducement which is often offered in addition to the negotiated discount. It may come in the form of cash, or free insertions/airtime. Strictly speaking, it should be remitted to the client, although that is far from always the case. Airtime barter may be illegal in the UK, but it is often difficult to audit who has used this extra airtime/pagination and for what purpose. An extreme example of what can go wrong when the client and senior agency management let their eye slide off the ball is provided by the Aleksander Ruzicka affair. Ruzicka was the president of Aegis’ German operation; but he is now spending 11 years in jail. The reason? He and several co-conspirators clandestinely siphoned TV airtime credits, which should have been remitted to the client Danone, into their own television sales house – where they were sold on for their own profit.

However, many clients are milder than Danone, which eventually decided to extract its pound of flesh in court: they simply take the view that incentives are a perk of the job, and would rather not know what is going on. They are not necessarily wrong to do so. As long as the system broadly delivers value, why worry about its flaws? Besides, it’s often difficult to determine the difference between what, from a media owner’s perspective, is simply a “loyalty payment” lubricating the wheels of business and an unvarnished bribe. The belief seems to be that the auditing system will expose any systematic skew in buying behaviour, and therefore acts as an effective suppressant of corruption.

As it happens, Ofcom’s terms of reference do not seem to encompass the principle of the discount. Siobhan Walsh, who is leading the 6-month investigation, will instead concentrate on whether pooled buying by the big operators (“share deals”) restricts choice for planners (who select the best audience profile for their client) and shuts out the smaller buying specialist.

The danger is that the investigation finds sufficient cause for concern to warrant involving the Competition Commission. Who knows what worms will crawl out if the CC launches a full TV ad market review? Nor, I suspect, will the repercussions be restricted to the TV market.


The agency kickback scandal you couldn’t make up if you tried

November 10, 2010

One staple theme yet to make its appearance in our favourite TV soap, Mad Men, is the celebrated agency kickback. No doubt it will in time.

But why wait for the soap when you can have the real thing, authentically reproduced in verbatim court transcripts?

I refer here to a protracted States-side legal case which Grey Advertising Group has just lost after attempting to suppress the evidence for a decade.

And what a very unedifying picture that evidence paints. Internal memos and personal transcripts reveal an agency whose senior executives were steeped to the gills in a conspiracy to deny major clients Procter & Gamble, Mars, British American Tobacco (BAT) and SmithKline Beecham (now GlaxoSmithKline (GSK)) about £4m that was rightfully theirs.

Before going any further, you’ll appreciate that I have to flag up a legal health warning. All these events took place a long, long time ago – up to 20 years ago in some cases. Almost all the protagonists have now quit the business. And at that time WPP, which now owns Grey, was no more than an expletive uttered by Grey supremo Ed Meyer – who then held the agency lock, stock and barrel – every time he lost an account to JWT or Ogilvy.

Also, I’d like to point out that what follows is a very much abbreviated version of a story recently broken by my fellow blogger Jim Edwards, whose detailed account can be found here.

Now back to the script. The scene is Grey’s London office, then at the top of Great Portland Street, circa 1998. New American ceo, Steve Blamer (left), has just arrived to take over from long-serving managing director Roger Edwards. An increasingly incredulous Blamer is updating himself on the agency’s financial position, with the help of chief financial officer Roy Wilson:

Blamer: P&G is that much?

Wilson: Yep.

Blamer: Jesus… I’m telling you, the reality is you as the financial officer and me as the ceo and now Roger (presumably Edwards) could be sued. I mean, we’re cheating and stealing from our clients. That is the truth.

And later…

Blamer: I believe we should return these discounts. I’m not going to, I can’t make that decision unilaterally…If those guys (senior management, in New York) say that we’re not going to do it, and we can keep the discounts… then I say, fuck it that’s crazy, send me a note, I want a ‘Get out of jail free’ card.

Of course, handing back the discounts – mostly from print contracts – would open a whole new can of worms; as Edwards was quick to explain, citing one client in particular.

Edwards: Mars is such a vitriolic client, that if they did catch you doing that they would probably punish you very severely. They would take you back years, take a brand off you or something like that.

Not surprisingly, everyone decided to stay mum. But they did change the terms of business, so that future discounts would be rebated to the client.

You might ask yourself why clients were not better informed about what was going on. After all, it was their money. The answer seems to be Three Wise Monkeys syndrome. Indeed, even those party to what was going on within the agency were baffled by clients’ seeming ignorance, or indifference.

Blamer: Have they [clients] ever discovered that in an audit?

Wilson: No.

Blamer: And why is that?

Wilson: …I mean to be honest one has to be a bit surprised that none of them have ever specifically, eyeball to eyeball… and then asked the question, since it’s a clause in every one of our contracts, but…

In view of this circle of deceit and self-deception, it might seem surprising that anything ever came to light. The weak link, indirectly, was Wilson, who rightly feared he might be made a scapegoat and had the conversations taped and transcribed as an insurance policy should he ever get fired. Which he later was.

The case of Grey is, of course, no isolated instance, merely a well documented one. Currently, there is a still-breaking media-buying scandal in China – involving broker kickbacks – which has already claimed the scalps of Vivaki Exchange’s two top China operators. Earlier this year, Aegis Media finally put the so-called Aleksander Ruzicka affair to bed, when it settled €30m on Danone in lieu of unpaid TV advertising rebates. And going back a few years, readers may remember Interpublic’s belatedly generous settlement on clients of media volume discounts, whose non-payment had come to light as a byproduct of the accounting scandal that engulfed the group at the beginning of this decade.


Obama, BP and the day the British mouse roared

June 11, 2010

Barack Obama must have been stunned when he heard the news. This time he’d gone too far with anti-British, anti-BP rhetoric and he was going to receive the just penalty for his temerity. Yes siree, the full nine yards: an open letter of complaint from John Napier.

John Who? you – like Obama – must be wondering. Come on, you know. Yes you do. The bloke who’s been running media specialist Aegis plc since Colin Sharman left. No, really running it. He isn’t just chairman, he got rid of the former chief executive and did his job for a while too. Which was, you ask? Getting that pesky shareholder Vincent Bolloré to frog off, of course. John, in his spare time, also chairs insurance company RSA, and was once managing director of research outfit AGB.

I’m glad we’ve cleared that one up. So what does he actually say in this letter? Well, all sorts of nasty things about the US president. For instance? He’s not very statesmanlike, he can’t take the heat under pressure, and he’s been lashing out at poor old BP ceo Tony Hayward in a “prejudicial and personal way.” That sort of thing.

I see. It’s like Squibb Minor berating the headmaster for unprofessional conduct – only to find his outburst lands the whole class in prolonged detention of the most humiliating “ass-kicking” kind. More or less.

Mind you, Napier – like Robert Peston in his blog today – does turn a neat trick in comparing and contrasting Obama’s treatment of BP with Obama’s treatment of the banks. In the letter he says: “There is a sense here that these attacks are being made because BP is British. If you compare the damage inflicted on the economies of the western world by polluted securities from the irresponsible, unchecked greed and avarice of leading USA international banks, there has not been the same personalised response in or from countries beyond the US. Perhaps a case of double standards?”

Mr Napier does not, of course, have an election to win in November. Where I suspect he, or rather RSA – the company he represents – is coming from is as a severely damaged investor in BP. Since the Deepwater explosion in April, BP has lost nearly 45% – or £55bn – of its value.

ELSEWHERE BP’s crisis management has descended to new levels of farce, this time over the oil company’s handling of Twitter. A rather annoying critic, Leroy Stick (believe that if you like), has been taunting BP from the fastness of @BPGlobalPR and the company has unsuccessfully tried to muzzle him. This week, Stick was forced to change his ‘bio’, which formerly read “This page exists to get BP’s message and mission statement into the Twitterverse.” Irritatingly for the company, it now reads: “We are not associated with Beyond Petroleum, the company that has been destroying the Gulf of Mexico for 50 days.” BP denies it has pressured Twitter into closing the site, and says it merely asked for the so-called ‘parody feed’ to clarify its status. Stick claims this is the last concession he will make: BP will have to close him down. More in Ad Age. Stay logged.


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