Publicis bid turns the screw on True North

Publicis insists its bid to take over former partner True North is friendly. But observers discern a more devious agenda.

When Maurice Levy says that Publicis’ bid to buy its former US partner True North is “not hostile” you can almost hear them laughing in New York.

If it were not hostile, it would be frightening to see the 55-year-old French agency boss when he really gets angry.

The bid (MW November 20) is not just hostile, it is a deliberate attempt to derail True North’s imminent takeover of Bozell Jacobs Kenyon & Eckhardt, leaving True North with no option but to strike a deal with the French group.

Publicis, with an 18.5 per cent stake in True North, is its largest individual shareholder. If the Bozell deal is struck, Publicis’ share in the merged company will dip to about ten per cent, thus diluting its control but also making it difficult, under French accountancy laws, to include equity income from the US operation in its financial results.

If that happened the agency would have little option but to sell its True North stake and rethink its US strategy. That could only mean buying another group or entering another alliance.

Publicis needs a global network notably to handle Nestlé and L’Oréal but increasingly to compete for work from MasterCard and Coca-Cola. In those circumstances it is easy to see Publicis’ actions as defensive.

The agency has previously handled global and US business through its alliance with True North. A relationship which ended in acrimonious divorce earlier this year after ten years and which provides the backdrop to the present bid. So acrimonious in fact that the idea of the two being joined again in marriage has amazed some observers.

“It was such a bitter divorce,” says True North chairman and chief executive officer Bruce Mason, “that we were amused to receive a marriage proposal.

“We are dubious about the sincerity of the overture. In light of the torture, the soap opera of problems between the two companies that ended in a rancorous divorce you have to ask why Publicis is doing this.”

The overtures began earlier this month. First in private and then more publicly. Levy sent a confidential letter to the True North board on November 12, ahead of their regular monthly meeting. In the letter he criticised the $440m (275m) Bozell deal as strategically naive and over-priced and called for talks on what he described as a “business combination” between Publicis and True North. That is French for a Publicis takeover, valuing the remaining 81.5 per cent of True North, which includes the Foote Cone & Belding network, at $700m (460m).

The True North board immediately dismissed the bid, which came almost two years to the day after the board had previously rejected a takeover offer from the French group, as a “phantom bid”.

Significantly, Publicis waited until almost the last minute to show its hand. Levy had been informed of the Bozell deal, by Mason, on July 31. But Publicis only reacted as the completion of the Bozell deal neared.

A proxy statement outlining the Bozell deal will be published in New York this week. It will announce an extraordinary general meeting and give just three weeks for shareholder approval to be secured.

“If we do not do anything our shareholding will be diluted and True North will have done a bad deal with Bozell – as a shareholder that will hurt,” says Levy. “We think our plan is the right way to go – we are not led by anger or revenge but are concerned about the interests of shareholders.

“The Bozell deal is awful. It is paying more than any other agency which has had talks with Bozell and from a strategic point it makes no sense to unite two weak international agencies which are both strong in the same US market.”

True North’s letter of response failed to address the Publicis claim that the Bozell deal was both strategically weak and over-priced.

“We didn’t feel we had to counter the claims. If Publicis wants to issue a serious bid then we will start to take it seriously but if it is going to act then it will have to do it quickly – we are proceeding at speed,” says Mason.

New York analysts are also sceptical of Publicis’ motivations. While the True North share price rose $2 to $26 on the news of the Publicis letter, one analyst describes it as “posturing” and another, James Dougherty at Prudential Securities, dismissed it as “not a credible bid”.

At the core is a need for all three parties to improve their global coverage. Publicis needs a US partner, and both Bozell and FCB are stronger outside Europe than in.

“We have the means to dispute the decision on the Bozell deal,” says Levy, without revealing what the agency’s next move will be. “We think our proposal is the right thing but if we fail the worst case is that we will be where we would have been if we had done nothing.”

That is not strictly true. If its stake in the merged company drops to ten per cent, Publicis will have no reason to hold on to its interest. It will neither give it enough access to the US market nor provide it with enough control to be a global player.

Some observers believe Levy is playing a game to boost the share price for an eventual sale shortly after the Bozell deal is completed. Levy refuses to comment, but that has to be a serious option.

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