£1.7bn global ad review is creative solution to Johnson & Johnson’s money problem

July 25, 2012

It would be nice to think that Johnson & Johnson’s newly announced review of its £1.7bn annual advertising spend was driven by a need for greater creative consistency. But it isn’t.

Money’s the thing – saving it that is. J&J may be one of the world’s biggest brands, but it’s also a company in trouble. Since 2009 J&J has suffered numerous recalls in the US, mainly of its over-the-counter drugs like Tylenol and Benadryl; but the prescription and medical devices businesses have also been hard hit. All in all, it’s said to have lost $1bn in sales, partly through bad luck and mostly through sheer incompetence.

At first it was the staff – including the marketing department – who paid, by being made surplus to requirements. Now it is the spend that’s being trimmed. Judge for yourself from the officialspeak: “Johnson & Johnson is conducting a global agency review and consolidation to build greater value and deliver innovative and fully integrated solutions for our consumer brands.” Well, they wouldn’t want less innovative solutions would they? And they could hardly be less fully integrated than they are at the moment.

In truth, there’s an easy win here for the new kid on the block, Michael Sneed – who became J&J’s top marketing (and PR) officer at the beginning of this year. There could hardly be a less efficient way of running your global marketing services than the one that exists at the moment. Uncle Tom Cobbleigh and All are at the advertising trough. It would be simpler to name a global marcoms group that isn’t on the roster.

WPP has business through JWT and AKQA; Publicis Groupe through Razorfish; Interpublic through Deutsch, Lowe, The Martin Agency and R/GA; Omnicom through DDB and BBDO; and Havas through Euro RSCG. That leaves, er, Dentsu and MDC off the list.

Sneed is a company lifer who, at various stages of his J&J career, has shown considerable sensitivity towards advertising creativity. It will be interesting to see whether this natural instinct gets overridden by the all-powerful imperative of saving the company money. Don’t expect a self-aggrandising Ewanick moment – Sneed seems too modest for that. Do expect a financial deal, of the “Team WPP” or more likely “Commonwealth” variety, that dresses up financial expediency as a coherent creative solution.

The most interesting thing about this review may be the losers. If Interpublic is among them, perhaps group CEO Michael Roth will at last seek to do a deal with Publicis Groupe. The air is certainly thick with rumours to that effect at the moment.

Which agency network group will land the next big deal?

December 31, 2010

Corporately, the 2010 agency scene has been remarkable in only one respect: the absence of a big, transformative deal. Consolidation, the key underlying trend of the past decade or so, seems to have stopped in its tracks.

True, there have been some near misses. Most notably, Dentsu nearly acquired digital network AKQA for about $600m, but backed off at the last minute over fears about the excessive price, not to mention the perceived hostility of AKQA’s senior management.

Publicis Groupe, however, did not launch its much-touted (not least by me) all-shares takeover bid for a holed-below-the-waterline Interpublic Group. And Vincent Bolloré, chairman of Havas, did not conclude the longest hostile takeover bid in history by acquiring the 70% of Aegis Group he does not already own.

Symbolic of this lacklustre M&A year has been the muted activity of the sector’s most aggressive actor, WPP. Group chief Sir Martin Sorrell restricted himself to useful infilling, of which the most decorative has been the acquisition this week of Blue State Digital, the agency that helped to propel Barack Obama into the White House, and the bankrolling of Peter Mandelson’s consulting business, Global Counsel. The £100m channelled into acquisitions this year is mere pocket money compared with WPP’s last big splurge – £1.1bn spent on buying research company TNS in late 2008.

Now I know New Year crystal-gazing is a dangerous thing – not least because the wildly inaccurate predictions, which often result, come back to haunt you. But I do believe change is in the air. No, really.

One straw in the wind is Omnicom’s return to the poker table after about a decade’s absence. Chief executive John Wren has pooh-poohed suggestions that his company will seek out transformative deals of the Razorfish (Publicis) and 24/7 Real Media (WPP) kind. But he has acknowledged Omnicom’s backwardness in the digital sphere and announced a Big Leap Forward. Typically, this is to take the form of partnerships rather than outright acquisition. All of which has not stopped Omnicom from getting into intensive negotiations to acquire eCRM company Communispace for about $100m (we may know the result of these quite soon; I gather there are some tax complications). Note that Omnicom has access to $2bn of revolving credit, with the option of an extra $500m.

Nor, for all the caveats that must surround any such bid, should we expunge Publicis/IPG from the script. Publicis has been put off its stride during 2010 by a messy succession crisis, which has now been settled for the time being. If anything, IPG’s plight has worsened during that time. To add to chief executive Michael Roth’s woes (prime among them, a smouldering fire in the IPG engine room, McCann Erickson), it looks very likely that one of his principal networks, DraftFCB, will lose its $1bn signature account, SC Johnson (which it has handled for decades).

Mitchell: Deal doesn’t add up?

And let’s remember that Aegis is not off the hook, either. Probably the most significant agency deal of 2010 was Aegis’ £200m acquisition of Mitchell Communications in July. Back then it seemed a shrewd move, and not only for Harold Mitchell, the eponymous founder, who ipso facto became a 4% holder of Aegis stock. In return, Aegis reckoned it had got significant exposure to Australasia, and a form of insurance against another hostile sortie from Bolloré – even if it did pay top Australian dollar for the privilege.

I have since heard the deal wasn’t quite as margin-enhancing as Aegis chief Jerry Buhlmann would have had us believe at the time. Mitchell has now admitted that revenues are not all they were cracked up to be. At any rate, Aegis has had to reissue its circular, with certain embarrassing amendments to corporate expectations contained therein. How Bolloré must be laughing all the way to his bank (Mediobanca).

Anomaly seeks financial assistance

November 15, 2010

Anomaly, the maverick marketing services group set up by former TBWA chief Carl Johnson (left), is seeking financial assistance after its business strategy stumbled – according to sources familiar with the situation.

A cash injection is likely to take the form of partnership with another organisation – if negotiations work out. Whether this partnership would involve a private equity specialist or investment by an international marketing services holding company is unclear at this stage.

Anomaly has a volatile track-record in winning large accounts, which include Converse, Nike and Virgin America. It held Diesel for only 9 months before losing it to WPP-backed Santo, and has recently ceded a large chunk of its Sony Europe business to Grey, also owned by WPP. However, its financial problems are not thought to relate to advertising but a specific division, Anomaly IP.

IP is an incubator which seeds early-stage businesses, in which Anomaly itself takes a stake and a share of the eventual profit, if any. Projects include Avec Eric, a joint-venture with Eric Ripert, head chef and co-owner of the Michelin triple-starred Le Bernadin restaurant; eos – a line of women’s shaving and skincare products; Shop Text, a mobile commerce platform; and By Lauren Luke – a co-venture with the eponymous English beauty-products doyenne, also known online as panacea81.

Johnson, a former planner, set up Anomaly in 2004 with a number of like-minded individuals from backgrounds such as TBWA, Wieden & Kennedy and Nike. It was founded in New York, but now has a London office as well. Like Crispin Porter & Bogusky, Anomaly has sought to define itself as an antidote to traditional “legacy” agencies which – it claims – only cater for the services they have experience in providing, rather than for what clients actually require. When Anomaly beat stiff competition to win Virgin’s start-up US domestic air-service in 2006, it produced not only an advertising strategy, but designs for the interiors of Virgin’s new fleet of Airbus A320s, the flight attendants’ uniforms and the content for a pay-per-view entertainment system.

If it is to find a financial partner, Anomaly may have to strike a difficult bargain with its founding principles. A recent $600m bid by Dentsu for digital group AKQA – later withdrawn – exposed tensions between the majority owners, GA Capital, and its two founders. Ahmed Ajaz and Tom Bedecarré were opposed to the Japanese bid and reported to prefer an IPO as a means of buying out the private equity investor. Siding with a traditional agency holding company, on the other hand, might lead to charges that Anomaly had betrayed its principles.

Why Dentsu is taking a more aggressive global stance

October 1, 2010

Stephen Fry and Jeremy Paxman know who they are. The Great Polymath and the Grand Inquisitor both gave the Dentsu name a big leg-up last week by publicising some rather innovative animation involving an iPad and the London office – one on Twitter, the other on Newsnight.

Paxo: He's heard the Dentsu name

But do clients know who they are – those, at least, based outside Japan? That, in a nutshell, has always been the defining strategic problem of the world’s fifth largest marketing services holding company. Its dominance in one market – even now the world’s third largest – is crushing, thanks in part to the lack of conflict culture in Japan. But it has signally failed to replicate elsewhere the success it enjoys in its home market. Until three years ago, only 8% of its revenue came from the rest of the world.

“Wakon Yosai” – Western technique, Japanese spirit – may have been the underlying principle of Japan’s international industrial success, but it simply doesn’t work in a people business like advertising. Dentsu has been slow, not so much to recognise this as to deal with it. It has tried numerous strategic alliances with Western agencies over the years, none of which have borne it much fruit. The current one is Publicis Groupe, in which it is an 11% stakeholder (with 15% voting rights). It has also tried haphazard direct acquisition – most notoriously an already decrepit Collett Dickenson Pearce, for which it paid far too much money back in 1990. CDP withered on the vine; today its legatee, Dentsu London, is little more than a service shop for established Japanese clients like Canon.

But, make no mistake, change is in the air. There is an aggressive, some would say desperate, determination to do things differently before it is too late.

Take as a starting point Dentsu’s announcement this week that it is is pooling all of its North American, Latin American and European businesses (excluding Russia) into one giant operating company, Dentsu Network West.  One of the novel features of the new set-up is that it is completely captained by Westerners. Its group chief executive is Tim Andree, also ceo of Dentsu North America; its head of Europe is Jim Kelly – formerly a senior executive at WPP; its Latin American ceo, Renato Lóes – newly headhunted from Leo Burnett; and its finance director is Nicholas Rey, another new appointee.

This certainly marks a break with Dentsu tradition, which has always stressed tight Japanese direction out of Tokyo HQ. The key is Dentsu’s all-American pin-up boy Andree. The hulking  former National Basketball player (he’s 6ft 11in tall) and ex-Toyota-cum-Canon client has a special place in Dentsu history: in 2008 he became the first non-Japanese to be appointed executive director of the holding company, Dentsu Inc – a position just below the main board. It was a mark of the esteem in which he is held by Dentsu president and ceo Tatsuyoshi Takashima, who himself has a pronounced “internationalist” outlook. Mindful that Japan’s is a stagnant ad economy that has recently slipped behind China’s, could he sensibly be anything else?

But let’s return to Andree. During four years of frenetic activity as head of North America he has bought, on Dentsu’s behalf, Attik, 360i and McGarry Bowen. The last of these has, for the first time, enabled Dentsu to break into blue-chip clients such as Kraft, Verizon and Pfizer in their main market. DNW is Andree’s dividend – the roll-out of his North American model to Europe and Latin America.

The promotion of Andree is not the only indicator of strategic change at Dentsu. It has been unusually vigorous in trying to buy up the few independent digital assets still remaining. A $600m pre-emptive bid for AKQA, flagged up in an earlier post, is currently capturing the headlines. But let’s not forget the bitter contest over Razorfish, in which Dentsu put $700m on the table, only to lose out to its “strategic partner” Publicis – even though it came in with a lower bid.

There has been internal scepticism of the Publicis/Dentsu deal – as a strategic asset rather than an investment – right from its inception in 2002; the Razorfish fiasco seems to have brought that to a head. Dentsu has already begun to pull out of Publicis; total disengagement by 2012, when the agreement comes up for renewal, would be no surprise.

In short, Dentsu has belatedly realised it has no choice but to aggressively go it alone if it is to be anything more than a powerful regional player. Such behaviour is contrary to everything in its tradition, which is internationally passive while also very controlling. The small-print in the DNW initiative hints at much greater devolution from Tokyo – especially in the matter of strategic acquisitions. That remains to be seen.

Dentsu launches $600m bid for AKQA

September 16, 2010

Word reaches me that Dentsu, Japan’s largest advertising network, has launched a pre-emptive $600m bid for digital independent AKQA.

No discourtesy to AKQA – which is well-respected  – but that sounds an awful lot of money  – even for an agency that is renowned for setting an impossible price on its independence. And it is: twice as much as it is worth gauged by conventional financial metrics. But then, Dentsu is desperate to buy digital presence in the West – and the USA in particular – at almost any price. And AKQA, which boasts an enviable blue-chip client list including McDonald’s, Coca-Cola, Unilever, Nike, Visa and Fiat, is one of a fast-shrinking number of desirable targets.

Readers of this blog will recall Dentsu’s bitter duel with its supposed ally Publicis Groupe to acquire Razorfish last year. Publicis eventually trumped Dentsu, which had offered an extraordinary $700m, with a lower bid of $530m; but then Publicis had an inside track with the owner, Microsoft, involving a favourable ad deal.

Dentsu eventually scored when its US unit acquired Innovation Interactive, the parent of digital ad shop 360i, at the beginning of the year. It also had its sights on search and social media specialist iCrossing, but that was snapped up at the beginning of the summer by the Hearst Corporation.

AKQA – founded in 1995 by Ajaz Ahmed, who remains its chairman – is a much bigger prize. Headquartered in San Francisco, it has outposts in London, New York, Washington DC, Shanghai, Berlin and Amsterdam; and employs over 800 people.

I’m told that Ahmed and chief executive Tom Bedecarré are against selling out to Dentsu. But the inconvenient truth is that their company has been majority-owned by private equity group General Atlantic for the past three years. GA calls the shots, and cannot ignore such a salivating offer…

I’ll keep you posted.

UPDATE, September 23rd: WPP bidding for AKQA, eh? Not at that price it won’t be. The rumour was described by sources close to WPP as “rubbish”. To prove the point, Campaign and Media Week – which gave credence to the story – have withdrawn it.

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