Ad mergers: post-nuptial blues
New York — Advertising mega-mergers - are they good for either the advertisers or the agencies? The first big merger caught Madison Avenue by surprise. In late spring, BBDO (Batten, Barton, Durstine & Osborn), Doyle Dane Bernbach (DDB), and Needham, Harper Worldwide - three of the top 20 agencies headquartered in New York - announced they were joining forces. The Omnicom Group, which they subsequently chose as their umbrella name, now has combined billings of $5 billion.
Within weeks, Saatchi & Saatchi, the mushrooming London-based agency which for the past decade has been gobbling up major ad shops in the United States and abroad, struck again.
This time the global giant purchased Ted Bates, Madison Avenue's third-largest agency, for $450 million. In the process, Charles and Maurice Saatchi, an enterprising pair of British brothers and the founders and operators of this huge advertising agency sprawl, also acquired the venerable William Esty & Co., which had merged previously with Ted Bates.
If these larger-than-life mergers caught the communications community by surprise, repercussions in their wake have been no less stunning. Played out in bold headlines in the trade press, the mega-merger story begins to sound like some sort of high-stakes, industrial-strength soap opera - the kind of show these advertising professionals are more used to sponsoring than appearing in.
Consider these recent reverberations:
Big-league advertisers have been withdrawing accounts from the merged agencies to the tune of half a billion dollars. Competing clients traditionally do not like to share agencies fearing their privileged and sensitive marketing data will not be kept confidential.
In a power play, Robert Jacoby, chairman and chief executive of Ted Bates for the past 10 years, was forced out when the new owners brought in their own team with orders to clean house. Initially refusing to accept the pink slip, he turned up daily for work in his executive office at the opposite end of the hall.
Finally conceding defeat, Mr. Jacoby resigned as well from his honorary post as chairman of the American Association of Advertising Agencies. He is reportedly richer by $100 million because of the deal he cut when he steered Ted Bates into Saatchi & Saatchi's fold.
Not so fortunate are the numbers of highly qualified agency professionals whose jobs have disappeared as a result of efforts to curb costs after these mergers. Experts are predicting there will be thousands of advertising people pounding the pavements by year's end in search of work because of a sluggish economy and budget cutbacks.
At this point, the mega-mergers appear to be reaching an impasse - and realigning of advertisers and agencies appears to be ebbing as well.
Saatchi & Saatchi, for instance, seems to have headed off a move by Procter & Gamble, one of its largest clients worldwide, to purchase an agency of its own or take billings ``in house.''
And according to Advertising Age, a leading trade publication, Saatchi & Saatchi is backing off from its push to combine Ted Bates with Saatchi & Saatchi-Compton and Backer & Spielvogel, an agency S&S purchased previously. The reason: major client conflict problems voiced by General Mills and by Mars Inc., the candymaker.
But the battle of words pitting ad agencies against their clients rages on. The most recent arena was the annual meeting of the Association of National Advertisers, held at the end of October at the Homestead in Hot Springs, Va.
Addressing this meeting, Keith L. Reinhard, chairman and chief executive of the newly merged DDB Needham Worldwide Inc., part of the Omnicom Group, suggested the question should not be what agency mega-mergers are doing for clients but rather what a particular agency merger does for that agency.
This is because service to their clients is the only charter advertising agencies have, he said.
``Our first duty is to make sure we are equipped to provide that service,'' Mr. Reinhard said. ``I'm not sure our clients can determine that for us.''
The client, as expected, had the last word. J.Tylee Wilson, the chief executive of RJR Nabisco, itself a merged company, wondered aloud how mega-mergers benefit advertisers.
``I hear the arguments about global reach and keeping up with merging clients, but I'm unconvinced,'' Mr. Wilson said. ``I simply do not believe that giant mergers pay off in economies of scale that will impact on my costs.''
Nevertheless, the trend continues. In recent days, Young & Rubicam and Saatchi & Saatchi have announced moves linking them even more closely with Wall Street.
Y&R formed an investment-banking joint venture with PaineWebber and headed by Y&R chairman Edward Ney.