Fallout from the Publicis/Omnicom merger

July 29, 2013

Richard PinderBy Richard Pinder

When first hearing the Publicis and Omnicom merger rumours you could have been forgiven for thinking it to be some silly season gossip.

But as we know POG is not a passing fancy, it is for real. Hats off to Maurice Levy who has consistently shown his ability to be daring, decisive and dynamic just when people least expect it.

So what drove it? And who are the winners and losers? First, two sets of observations:

The announcement was made in Paris, not New York. The Group will be called the Publicis Omnicom Group, not the Omnicom Publicis Group. The revenues of Publicis Groupe are some way below those of Omnicom Group though their market caps are much closer, but it will be a merger 50/50 owned by the two companies shareholders.
After the dust has settled and the merger is done, the silly co-CEO thing is finished with and the company starts to operate normally, the CEO will be John Wren, from Omnicom, the CFO likely to be Randy Weisenberger from Omnicom, the ticker marker on the NYSE will be OMC and largest market for the combined entity will be the USA.

Once the incredulity subsides, you can see the attraction to Maurice and John. And as the above simple summary shows, you can see the game that is being played by both to get the other to agree to the deal. The former gets to show the French establishment what world class really means, a brilliant retirement gig as non executive Chairman of the world’s number one advertising group and without having to go through with the charade of making good his oft delivered promise to Jean-Yves Naouri to be his successor. The latter, within 30 months, gets to run something nearly double the size of OMC today, in seriously good shape in Digital and Emerging Markets, the number one ad agency of the number one spending client in the world – P&G who had only just taken most of their business from OMC – and all without the pain and risk of taking the long road there.

For Elisabeth Badinter it’s a fabulous end to her tenure as Chair of Publicis – seeing the company her father founded in 1926 become number one globally, as well as securing the very strong valuation on her holding that today’s Publicis stock price provides. For a number of senior managers there will likely be the triggering of various unvested options, stock grants and other goodies, not to mention the special dividends, that will mean good will all round. So, off on the August vacances with a spring in their step? Well not everyone…

For a start there is precious little in the announcement about WHY this is better for clients. We can see it’s better for doing deals with the big media partners, old and new. Scale counts there. But when the bulk of the enterprise’s activity is still about finding, creating and executing inspirational ideas to motivate the world’s population to choose one brand over another brand, there is a point beyond which scale can actually be a disadvantage – talent feels lost, ideas get killed by people who have no idea what the clients’ needs are and everything takes too long and costs too much. Well that’s what a large number of large clients have been telling me this past two years since I left Paris as COO of Publicis Worldwide.

There is also the small matter of the $500m savings mooted in the announcement. Publicis Groupe runs lean. Margins are already industry best. So the chances of finding much of the savings there seem slim. It will be interesting to see how the board of BBDO reacts to the likely loss of their top tier international travel rights, or the agencies of DDB cope with tough bonus rules that tie every unit in the company to the performance of those around them, as happens at Leo Burnett or Publicis today.

As a footnote on the winners and losers, spare a thought for those who fought, lost and thought they had won in the long-running soap opera called Maurice Levy’s succession. Just as the game looked like it would soon be over, the sport got changed and everything was different.

It will also be fascinating to see what WPP do about this. They have got used to being the world’s largest and Sir Martin is rarely quiet for long on any topic, let alone one so close to home. Bookies will surely be giving poor odds on a shotgun WPP/IPG or WPP/Havas union.

And me? Well as client choice reduces, the need for new global alternatives will continue to increase. It’s why we started The House Worldwide and it’s why we think it will  be increasingly relevant to clients who want to get back to a world where the client and the brand are more important than the agent promoting it, and where the money is better off going to the talent than to the accountants counting it.

Bigger and smaller, that’s the future of the ad network game.

Richard Pinder is co-founder and CEO of The House International. He was formerly the head of Publicis Worldwide.

 

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Richard Pinder launches global network with Maserati as a client

March 26, 2013

Richard PinderAfter years of being a jet-setting senior suit in someone else’s service, Richard Pinder has decided to go global on his own account with the ambitious launch of international network The House Worldwide.

Pinder, it will be recalled, was head of Publicis Worldwide for five years until group succession politics (the imposition of Jean-Yves Naouri as executive chairman) made further tenure of his position unrealistic.

That was two years ago. Since then, Pinder has been pondering how to cash in on his experience with global clients (he’s worked for over 25 years in Asia, Europe and the USA; for Leo Burnett, Ogilvy & Mather and Grey, as well as Publicis) by building a new-model worldwide agency network.

No mean cliché, the cynic will object. We’ve heard the rhetoric before. What’s the reality?

It’s true that the agency world has long been struggling with a “post-analogue” structural solution to the increasingly financially unviable traditional creative agency network, with its army of regional bureaucracies. Some have proffered a solution in the form of the fleeter-footed international micro-network (step forward BBH, Wieden & Kennedy and – in its heyday – StrawberryFrog.

Pinder, however, has gone a step further in presenting a top-down managerial solution – or perhaps that should be management consultancy solution – in place of the piecemeal creative one. His starting point is that the traditional global advertising business – unlike professional counterparts such as lawyers and accountants – loses most of its senior talent to the management of regional geographic fiefdoms, which are there primarily because of historical legacy. What this talent should be doing is servicing the client’s agenda rather than their own corporate one. The exception, where the client really can insist on top-level personal service, is a vanishingly small number of mega-clients, such as Ford and Procter & Gamble, which have specially structured teams to pander to their requirements.

Pinder’s idea is to provide this level of service for global, or at least international, clients further down the budgetary league table. Each client should be serviced by no less than three senior people at any one time. To do this, he has joined forces with a core team of like-minded senior executives: initially, Peter Rawlings, former chief operating officer DDB Asia, Chris Chard, former chief strategy officer of Lowe Worldwide in New York and Ben Stobart, former senior vice-president (chief suit) of Burnett Chicago. These will deal directly with top clients on a day-to-day basis; the specialist skills base, on the other hand, is to be provided by a network of over a dozen associated network companies, of which the best known is Naked Communications (see AdWeek for a full list).

Note the absence of an overall chief creative officer. This is deliberate: Pinder does not believe a single individual can adequately address the creative needs of all client types.

Why is Pinder convinced this model can operate from a single fixed geographical location (well, actually two in THW’s case – London and Singapore)?  Because of consolidation on the brand management side. More and more marketing power is being concentrated into the hands of Chief marketing officers and indeed chief executives; less and less being delegated to regional and country power bases.

But, the acid test is: has Pinder got any clients? Yes he has. He has been collaborating with two over the past year in honing the organisational structure of THW, during what he calls “beta mode” (how digitally au courant).

And they are? Maserati and an upmarket specialist haircare brand, GHD (stands for “Good Hair Day”). Both, he tells me, are poised at an interesting fulcrum of development, from the brand and new product point of view.

Maserati, an ultra luxury sports car marque lodged in the Chrysler/Fiat stable, has been given a €1.6bn injection to broaden its model range and take on Porsche.

GHD – which produces premium-priced hair stylers – is also cash-rich after being bought for £300m by Lion Capital. Lion is investing in npd, with a view to bringing GHD out of the salon and onto the international stage. Inevitably, that is going to involve careful brand positioning as GHD moves into a broader market segment.

However, Pinder is coy on the subject of who, apart from Maserati and GHD, is bankrolling all of this. It seems likely that both principal founders (Pinder and Rawlings) have skin in the game. But a project of this scope is financially beyond most individual investors, even if they are relatively wealthy admen. Private equity seems to the answer. Among the list of network associates is, rather intriguingly, a UK-based hedge fund called Toscafund, whose chairman is former RBS bigwig Sir George Mathewson. Pinder claims Toscafund is very handy on the “analytics” side. No doubt. But my guess is it’s providing a lot more resource than that.


Neogama loses Bradesco, Omo to Interpublic – and 40% of its revenue

January 30, 2013

alexandre-gamaNot all fairy tales have a happy ending. One such is the marriage of convenience between Brazilian hotshop Neogama, its micro-network affiliate BBH and Publicis Groupe. Readers of this blog will recall that, a little over six months ago, Publicis chief Maurice Lévy bought out the 51% of BBH PG did not already own. A useful by-product of the deal was that he acquired not only BBH’s 34% stake in one of Brazil’s hottest agency properties, but the majority shareholding of its founder and creative supremo, Alexandre Gama, at the same time. Neatly, Lévy solved the creative succession crisis at BBH with the same stroke of his pen – by appointing Gama as BBH’s global creative chief, replacing Sir John Hegarty.

Alas, the deal has worked out somewhat better for Gama than for Lévy and Publicis. Gama managed to bank his cheque, but Neogama has just lost about 40% of its revenue, and two of its principal clients. Or so I hear.

It is common knowledge that one of the reasons Gama was hawking his majority stake in the first place was that he feared his agency was too reliant upon a single account, that of Brazilian bank Bradesco. Indeed, rumours soon began to surface that the bank was about to review. Well, now it has: and placed the account with McCann.

For Interpublic, McCann’s parent, Neogama’s plight is, however, a double joy. Another major – this time multinational – client has also fallen into its lap. I mean Omo (“Dirt is Good”), which has moved to Lowe.

In retrospect, we can see this was an accident waiting to happen. As is well known, PG is a Procter & Gamble agency group, and Omo is owned by Unilever. Under the status quo ante, Neogama had an element of protection from client conflict, in that BBH – itself a major Unilever network – was still majority-owned by its founding partners (i.e., Nigel Bogle and Hegarty). All that ring-fencing was swept away by the Lévy deal.

8027388763_a9feed3b19_zIt will interesting to see who gets the blame for this cock-up. My money is on Jean-Yves Naouri, the once but not future king of Publicis.

One thing you can be sure of: it won’t be the Silver Fox himself, who now seems comfortably ensconced in a permanent chairman role, despite recent protestations that he was – at 70 – on the point of retiring.


P&G’s Gillette strategy? Blame the messenger with a $150m account review

September 18, 2012

It seems Gillette advertising is the best a man can get not after all. Not at least when that man is Procter & Gamble Brand-Building Officer Marc Pritchard. Pritchard has just put the North American shaving, deodorant and body wash business up for review, which at a spend of $150m last year (according to Kantar) makes it the kernel of the Gillette worldwide business.

That, by the way, will also be up for review quite soon, and must be worth upwards of $300m in total.

In the world of advertising, this is a seismic event. BBDO has handled the Gillette account for ever. Or, to be a little more precise about the matter, since 1966 in America, when it bought the Clyne Maxon agency, which first won the business in 1931. In 1989 BBDO devised one of the most famous advertising tag lines of all time: The Best A Man Can Get. And in 2005, it successfully hurdled perhaps the biggest agency relationship crisis it had ever faced when P&G acquired the formerly independent shaving products company for $63bn, yet decided to retain BBDO as its global agency – despite it never having appeared on a P&G roster previously.

So why a review now? Why at all in fact? After all, highly public account reviews of this kind  – it’s going to last up to 6 months according to P&G – are as rare as hens’ teeth on Planet Cincinnati.

Naturally enough, P&G is playing down the significance of the review. It’s only a chunk of BBDO’s advertising contract that is under threat, they say – not Braun, not the Venus ladies range, not the media account. As if Hamlet could somehow continue to play without the presence of an insignificant character like the Prince. And they are at pains to reassure us that BBDO advertising is still “good” (according to Patrice Louvet, president global grooming and shave care). But, and here is the kiss of death for the Omnicom-owned advertising network:  “We believe there’s an opportunity to be even better and, importantly, to better integrate the product proposition with the overall idea.”

Let’s unravel all the marketing-speak for a minute. BBDO and its sister below-the-line agency Proximity are going to repitch for the business: sure they are, but with what chance of success? The present advertising stinks, is P&G’s subtext.

P&G has been losing share in some very trying market conditions. There’s a recession on out there. People are thinking of value for money but what they’re seeing in its place is an overpriced top-of-the-range Fusion razor system and a fading mid-market legacy brand, Mach 3, that’s being out-priced and out-promoted by Schick. Gillette’s ace in the pack is innovation: it prides itself on being able to charge its customers more for (literally) cutting-edge razor technology. A replacement for Fusion is coming up – probably in 2014 – and Cincinnati has got the jitters. If Fusion Plus (0r whatever it’s going to be called) doesn’t come up with the premium-priced goods, then P&G shareholders are going to be really unhappy. So, it’s time to blame the messenger – or at any rate keep him mean and keen with an extravagant display of market disciplining.

Wieden & Kennedy – the agency that can do anything, including handling Tesco, these days – is the roster favourite to win the account. But don’t underestimate Andrew Robertson, President and CEO of BBDO Worldwide, as he rises to the account challenge of his career.


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.


Last top 10 Brazilian indie Neogama sells out to Publicis Groupe, not BBH

July 4, 2012

It seems that months-long negotiations over who will own the controlling stake in fashionable Brazilian agency Neogama BBH (see my earlier post here) are now completed. So says the Brazilian trade press.

And the answer, shortly to be announced on the French Bourse, is: Publicis Groupe. Not BBH.

Do such technicalities matter, given that all these agencies are part of the same, happy, family? Well, yes they do. There’s more for micro-network BBH in this award-winning agency than a 35% stake.

Neogama’s biggest single client is burgeoning Brazilian bank Bradesco, but the agency also plays an important role in servicing BBH global clients such as Unilever and Diageo.

As is well known, Publicis Groupe is essentially Procter & Gamble-aligned. The only reason BBH, and therefore Neogama BBH, is permitted to handle Unilever business is a ring-fencing 51% stake in BBH held by its senior staff, chiefly group chairman Nigel Bogle.

If Publicis Groupe has directly bought out Neogama BBH, which it appears to have done, what will happen to that sizeable chunk of Unilever business? That is the question – as posed by rival Unilever agencies WPP, Interpublic and Omnicom.

Neogama’s principal shareholder is its flamboyant founder, Alexandre Gama. His is the only top-ten agency Brazilian agency that, up to now, has managed to remain independent. His motives for selling out? He has been running his agency a long time – over 12 years. Bradesco is overweight as the main client. And money, yes money. Gama’s services are highly in demand, and he knows it. He has been hawking his stake about for some time – in the not unreasonable expectation that he will get a bigger wedge from PG if he does so.

Ideally, BBH should have been the one to buy him out. But it doesn’t have the money. So Publicis Groupe, which probably had first refusal anyway, stepped in and snapped up the agency. Gama will now have to report directly to PG group chief executive Maurice Lévy, which he will not enjoy very much. By all accounts, the two men loathe each other.

Even when the Neogama acquisition is completed, WPP – owner of Y&R, JWT and Ogilvy – will continue to be the biggest biller in Brazil.

Neogama’s $667m turnover in 2011 was up 5% on the previous year, according to Inter-Media Project. Its revenue was $53m. It has 270 staff, according to Publicis Groupe.

UPDATE 9/7/12: Some further facts and figures about Neogama’s performance have come my way. Almost certainly included in the deal were two Neogama subsidiaries, Triacom – a promotion company – and MIM – a digital specialist. BBH’s precise share in Neogama was 34.4%. It had no share in Triacom or MIM. The latest financial performance figures were:

Gross revenue, for Neogama, Triacom and MIM respectively:  $66.7m, $8.7m and $1.1m. Net revenue: $57.3m, $7.9m and $0.9m. Operating profit: $28.4m, $1.5m and $0.4m. Operating profit after tax: $18.1m, $06m  and $0.3m.

A rumour has surfaced that Neogama’s biggest client, Bradesco, is reviewing.


Yes, we Cannes: WPP, McDonald’s and McKinney grab top Effie Index rankings

June 18, 2012

It might seem counter-intuitive to announce the global Effie ‘Effectiveness Index’ winners at the Cannes International Festival of Creativity but then, as my colleague Stephen Foster points out, Cannes has become such a monster event it serves as global launchpad for virtually any marketing services event these days. So, before becoming immersed in a week-long self-congratulatory orgy of advertising creativity, let’s just remind ourselves of those advertisers, brands and agencies that actually bring home the bacon:

  • Unilever is the most effective advertiser;
  • McDonald’s is the most effective brand;
  • WPP Group is the most effective advertising holding company;
  • Ogilvy & Mather is the most effective advertising agency network;
  • Ogilvy & Mather (Mumbai) is the most effective individual agency office;
  • McKinney (Durham, North Carolina, USA) is the most effective independently held advertising agency.

Yes, I was wondering about that last one, too. It recently appeared in ‘The Pitch’, AMC’s unscripted programme in which two agencies vie over 7 days for  a piece of business, in this case Subway restaurants. McKinney won. It’s notable for its Audi A3 campaign, Art of the H3ist, which garnered two Effies and a Cannes Lion. And also for something called “connection planning”, which I take to mean an integrationist skill that ensures campaigns work smoothly across all channels.

Good for McKinney, I say. But I do have a qualification. Last year’s winner in this category was the slightly more universally recognised Wieden & Kennedy of Portland, Oregon. Now, I’m all for merit making its way to the forefront without having to await Buggin’s Turn. But I also look for consistency in results. The Effie Effectiveness Index, which is sponsored by insight portal WARC and compiled from 39 individual national Effie competitions, was only inaugurated last year and therefore lacks granular historical perspective. That said, there is a repeat winner this year: McDonald’s, with the most effective brand accolade. Here, for quick reference, is last year’s roll of honour:

  • Procter & Gamble was the most effective advertiser;
  • McDonald’s was the most effective brand;
  • Omnicom was the most effective advertising holding company;
  • BBDO Worldwide was the most effective agency network;
  • Sancho BBDO (Bogota, Colombia) was the most effective agency office;
  • Wieden & Kennedy (Portland, Oregon, USA) was the most effective independent advertising agency.
I don’t suppose that Sir Martin Sorrell will be worrying too much about historical perspective, as he wipes the blood away from his nose. One way or another, WPP has collared most of this year’s top Effies. So, he is worth it, after all.

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