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 To prove the point, Campaign and Media Week – which gave credence to the story – have withdrawn it.

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The Silver Fox proves his cunning

June 2, 2010

Lévy: Last laugh?

That’s it then. Jean-Yves Naouri has been confirmed as Maurice Lévy’s successor as Publicis Groupe chairman and chief executive, and – as predicted – David Kenny, joint head of Publicis’ digital/media buying venture, VivaKi, and a possible contender for the throne, is to step down.

Not exactly. What may really have happened is that Maurice Lévy frightened a refractory board and some dissident shareholders into giving him another, indefinite, term of power. The Silver Fox (or should we call him the French Houdini?), called everyone’s bluff by threatening to retire, but apparently had no intention of doing so. The threat of leaving seems to have concentrated minds around the Unacceptable Alternative: life without Lévy at the top.

It wasn’t a very pretty perspective. Après moi, le déluge, you might say. Publicis Groupe has punched well above its weight in the world arena, but its financial recovery is fragile. Organic growth has been comparatively good, but the digital programme is far from complete and parts of the geographical coverage – China in particular – are relatively weak. Coming up shortly are some complex issues with a strategic shareholder, Dentsu. Dentsu, Japan’s largest advertising group, had owned about 15% of Publicis but has begun reducing its stakeholding. According to some, it plans to get out entirely by 2012.

Is this a situation to entrust to a new and untried chief executive, Lévy might ask rhetorically?  If we omit the possibility of an outsider (hugely disruptive in a family-built business like Publicis) that really leaves the other four members of the executive committee as serious candidates. Jack Klues, chairman of Mediavest Starcom Group, and Kevin Roberts, head of the Saatchi & Saatchi Group, share several disabilities. They’re too old, they’re too attached to “old media” and they’re not French.

Kenny may be American, but he’s considerably younger and represents the cutting-edge of Publicis’ endeavour: he’s Mr Digital incarnate. Against that, it has been known for some time that Kenny will not be coaxed from America to France, a prerequisite for taking the top Publicis job. What’s more, he has been sniffing around a Boston-based private equity company with a view to becoming its chief executive (so far without success).

When he made his statement about stepping down at the end of 2011 (during the first quarter earnings call), Lévy must have known that Kenny was on the way out.

Which brings us to Naouri: French, of course; a technocrat like Lévy himself; and a safe, able pair of hands. But he lacks the charisma to be a shoo-in. Does he have the all-important blessing of the Publicis family, in the form of principal shareholder and supervisory chairwoman Elisabeth Badinter? I leave that as an open question.

Now Kenny has officially admitted he is leaving, Lévy has shortened the odds on Naouri being his successor by enlarging his role (as chief operating officer) and giving him, it appears, special responsibility for sorting out Publicis’ problems in China. But when exactly will he succeed to the hot seat? An awful lot can happen to a candidate’s chances in five years, not all of it good. The question now left hanging over Naouri’s candidacy is this: why wasn’t he good enough to take over by 2012?

Naouri’s weakness, however, is Lévy’s strength. Bien joué, M. Lévy.

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Why is Dentsu selling a stake in Publicis Groupe?

May 10, 2010

It’s not only Publicis Groupe chief executive Maurice Levy who appears to be heading for the exit by 2012. Major shareholder Dentsu – one of the world’s largest ad agencies in its own right –  may also be preparing for a strategic withdrawal from the group at about the same time.

That would certainly be one reasonable explanation of why it has just offloaded a large slug of shares.

The shares in question represent nearly 4% of Publicis’s total equity. Pre-sale, Dentsu owned 15% of Publicis, making it the company’s most significant shareholder, on paper. But here’s where politics comes in. Not all Publicis shares are the same: some have double voting rights. Under the old regime, Dentsu theoretically held nearly 17% of voting rights, but placed 2% of these (ie, anything above 15%) in a partnership agreement with Publicis’ other powerful shareholder, Elisabeth Badinter – representing the founding family. This in effect was a double-lock, guaranteeing the family interest – also with 15% voting rights – reigned supreme. On the one hand, two major shareholders, with over 30% voting rights between them, could ward off any predatory interest. On the other, the excess voting shares arrangement meant Badinter had a degree of control over Dentsu should the relationship sour.

So how have things changed? To outward appearances, Dentsu has managed to squeeze €218m out of Publicis at a rather inconvenient time and given back very little in return. Under a prior agreement, it had to offer the 7.5 million shares to Badinter (on a first-refusal basis). There was little choice but to buy and cancel them (unless of course Publicis is looking for another powerful outside stakeholder, which I doubt). And yet Dentsu has hung on to its maximum 15% voting rights, and still retains two members on the Publicis supervisory board.

Is this the first of a series of carefully controlled tranche sales that will eventually result in Dentsu’s exit from the strategic partnership? Quite possibly. It’s easy to see what Publicis has got from the deal over the years (lots of money and a strategic leg-up in the Far East); less so to discern Dentsu’s advantage. For a start, Dentsu management and shareholders must harbour some resentment over the ¥38bn (€320m) writedown on the Publicis stake they had to swallow last year, which helped push the Japanese group into its first loss since 1978. This much is certain: the share sale is another indication that Publicis Groupe is entering an interesting period of flux.

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Is Publicis preparing a bid for Interpublic?

January 22, 2010

Can it be true? I hear that Publicis Groupe is looking at an audacious all-shares takeover bid for Interpublic.

Publicis is nominally fourth in the marketing services league, behind Interpublic, when ranked by global revenues. However, the gap has been closing steadily in the last year and they are now almost neck and neck. Study their market performance and you would hardly believe both have entered the same recession. Where Publicis, judging from its share price, has outperformed, IPG has significantly underperformed. The market capitalisation of the two companies eloquently tells the story. IPG is now valued at about $3.4bn whereas Publicis is worth $8.26bn, making it nearly two and half times bigger. We might add that, over the past year, Publicis’ position has been strengthened by the dollar/euro exchange rate moving in its favour (excepting bumps in the last few of days, of course).

But why would Publicis entertain such a thing, given all the turmoil it could cause? Imagine the account conflicts: the cars, the cosmetics, healthcare and technology accounts that would have to be sorted out…

A few ideas come to mind. First, IPG is temptingly vulnerable, whoever decides to have a tilt at it; and Publicis is better equipped than most. Despite Levy’s surface optimism about recovery, he knows as well as any other group chief that significant organic growth in the near future is a will-o’-the-wisp. With shareholders to appease, and assets cheap, another round of industry consolidation begins to look attractive. Never mind whether the acquisition is really earnings positive – or dilutive. With an astutely managed ‘merger’ no one can be certain for years to come. A big acquisition buys time and the benefit of the doubt (as Kraft well knows).

Second, Publicis has some unresolved business with Dentsu, the Japanese agency group with a 15% stake in the group. It has not been a happy arrangement. I noted, for example, tension between the two partners over the Razorfish acquisition last year. Acquiring IPG might be a way of diluting Dentsu’s influence by rebalancing Publicis’ portfolio. The Dentsu deal, in any case, comes to a close in 2012: Dentsu may want its money back. Dentsu and Publicis-owned Saatchi & Saatchi share a worldwide interest in the Toyota car account. Could there be a bargain to be struck there, for example?

Lastly, never underestimate the human factor. Publicis Groupe chief Maurice Levy is nearing the end of his long and successful tenure. He may wish to bow out on a high note. And this would certainly be a ‘C’ to crack the chandelier.

According to those in the know, the detail of any such bid would be managed by Isabelle Simon, senior vice president at the French global marketing services conglomerate. More important than the title is the fact that she is charged with acquisitions policy at Publicis. Simon has had a high-flying career as lawyer and financial whizz-kid, in both the United States and Europe. Her last job was as an executive director at Goldman Sachs, where she specialised in M&A and capital market transactions. She was poached by Levy last February. The telephone-number salary attached to her suggests he wasn’t thinking of a couple of cheap infill acquisitions.

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Cheil confirms Barbarian deal

December 3, 2009

So Rick (Webb, COO Barbarian Group), no truth in the speculation that Cheil Worldwide is buying your company? Funny, I could have sworn the acquisition of a majority stake has just been officially announced. How quickly things can change 180 degrees from an “absolute untruth” to a done deal. It must be that memorandum of understanding you had signed with Cheil that gave you enough wriggle room to be economical with the truth.

An MoE is not strictly speaking a deal, it’s just expresses the intention to sign one. And, of course, the MoE could have expired in less than a month’s time with no deal being struck. I bet no one’s going to come clean about the price tag being $10m for the whole lot though, which is also to be found in the MoE. Note that Cheil could acquire only 49% of Beattie McGuinness Bungay, a UK agency apparently in robust good health. The majority stake – 51% or above – eventually prised out of Barbarian suggests financial weakness on the acquired company’s part.

The deal’s an odd but interesting one, tieing together as it does a maverick US digital agency group, which has all but run out of money, with a highly conventional Korean network, which has plenty but lacks the cultural savvy to get into the digital game. All rather reminiscent of Dentsu’s attempt, unsuccessful as it turned out, to lay hands on Razorfish.

I’ll leave you with the reflections of Seth Alpert, managing director of AdMedia Partners, which advised Cheil on the deal:

“For years large US and European agency holding companies have been adding capabilities in Asia to serve multinational clients in all markets. We believe that Cheil’s transaction with Barbarian demonstrates that Asian advertising holding companies are now executing the same strategy – adding strong US capabilities through acquisition. Another example of this trend is the reported aggressive pursuit by Dentsu, Japan’s largest advertising agency, of interactive agency Razorfish, a company ultimately acquired from Microsoft by Publicis earlier this year.”

Quite.

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Publicis and Dentsu cut up nasty over Razorfish acquisition

July 29, 2009

RazorfishWord reaches me that Razorfish, the digital interactive-cum-media placement agency being disposed of by Microsoft, is causing controversy as the bidding enters the second and final round.

Microsoft originally bought Razorfish as part of its $6bn acquisition of aQuantive in 2007, but clearly feels an agency of this size conflicts too much with its ad sales operation. The idea is to offload it, via Morgan Stanley, onto one of the big agency groups for well over $400m, plus  a commercial deal involving Microsoft proprietary advertising technology and a commitment to buy ad space across Microsoft web properties such as Bing. Conditional selling, you might say.

Interpublic and Omnicom have fallen by the wayside, which leaves WPP, Publicis Groupe and Dentsu in contention.

Publicis emerged as an early favourite, despite the fact that its platform technology (via Double Click) is more closely aligned to Google than Microsoft’s Atlas. So it was somewhat miffed to discover that its ally Dentsu – which holds a strategic stake in Publicis – has comprehensively outbid it.

But the $700m rumoured to be on the table may not be the knockout bid it appears. The trouble is Dentsu doesn’t have the US presence to do an appealing commercial deal. Which is where, in other circumstances, its ally might have come in…

Experts think that $700m is over the top in current market conditions, a symptom of Dentsu’s desperation to catch up. Maybe Microsoft should take the money and forget the side-deal. But then again, that side-deal has become more important now Microsoft is acquiring Yahoo!’s search business.

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