Three Who Bucked The Urge To Merge And ProsperedBy
When a parade of mergers and consolidations visited the advertising, accounting, and tire-manufacturing fields during the late 1980s, those who didn't join the marchers were often criticized for being dangerously out of step with the times. Without the advantages of size, how could an independent hope to survive against larger foreign competitors at home, or, if need be, penetrate faster-growth markets in Europe and Asia?
Well, three independent players--ad shop Leo Burnett, Cooper Tire & Rubber, and accounting firm Coopers & Lybrand--bucked the consolidation trend. And now it's their rivals, burdened by client defections and heavy debt, that are tripping up.
FOLKSY. During the 1980s, some venerable names on Madison Avenue, from BBDO Worldwide to Doyle Dane Bernbach Group and from Ted Batesto Ogilvy & Math-er Worldwide, were swept into such global ad shops as Omnicom Group, Saatchi & Saatchi PLC, and WPP Group. But privately held Leo Burnett Co. had long prospered by turning out its unique brand of folksy advertising for Procter & Gamble Co. and Philip Morris Cos., among others. And it insisted on going solo. "We've always been regarded as the antimerger agency," says Chairman and Chief Executive Hall "Cap" Adams Jr., who is planning to retire atyearend.
That turned out to be a wise course. Mther global ad shops have been preoccupied with paying off debt. But Burnett has quietly built up considerable overseas billings on its own. It has acquired or set up partnerships with a patchwork of foreign agencies and now has a presence in 46 countries. In fact, last year, roughly 42% of its $3.58 billion in billings came from abroad. Accompanied by Burnett's ads, Philip Morris' Marlboro became a global brand, while P&G's Pert Plus shampoo became a top-seller worldwide.
Cooper Tire & Rubber Co. has become a testament to the notion that small can be beautiful, even in a global business such as tire manufacturing. While some of the world's largest tiremakers took a thrashing last year, Cooper's profits grew 14%, to $66.5 million, on $896 million in sales. Even as the industry continues to skid this year, Cooper has been operating its plants at full tilt, vs. the 80% average capacity utilization for the industry.
What gives? For one thing, Cooper sells only to independent tire dealers, rather than to the Big Three, which demand heavy discounts. "Cooper wants to sell to the guy with 50,000 miles on his Buick, who wants another 50,000," explains one supplier. And it's not a bad business to be in: The market for replacement tires can offer relatively fat margins next to those from stingy Detroit. Unlike Cooper, bigger tiremakers must rely on original equipment sales to keep their plants humming. They're also driven to spend heavily on research and development: Goodyear Tire & Rubber Co. spends 2.9% of sales on R&D, vs. Cooper's 1.2%.
RISKS OF MESHING. Cooper's near-namesake in the accounting world, Coopers & Lybrand, also resisted consolidation. In 1989, Ernst & Whinney merged with Arthur Young, while Deloitte Haskins & Sells joined Touche Ross. However, Coopers & Lybrand's then-chairman, Peter R. Scanlon, who retired on Oct. 1, figured there were not enough advantages to offset the risks of meshing the operations--and egos--of two large accounting firms.
His instincts were right. A culture clash at newly merged Deloitte & Touche caused the firm's entire 4,800-member London practice to bolt for Coopers & Lybrand in late 1989--an addition that made it the largest accounting firm serving Britain. And overseas billings have grown 78%, to $4.1 billion, or 66% of thefirm's total, since 1988. "I haven't really felt too beaten up," says Scanlon.If only other companies, so entranced by the consolidation fad, could saythe same.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Uber Halts Autonomous Car Tests After Fatal Crash in Arizona
- Apple Is Secretly Developing Its Own Screens for the First Time
- Stocks Slump as Facebook Hits Tech; Bonds Recover: Markets Wrap
- From a $126 Million Bonus to Jail: The Fall of a Star Trader
- Facebook Plunges as Pressure Mounts on Zuckerberg Over Data