Foote Cone Publicis: A Marriage Made In Hell
Executives from two of the world's most venerable advertising agencies remember with bitter irony the celebration in 1990. In the French village of Chantilly, the champagne flowed freely and officials warmly embraced to celebrate the broad global alliance sealed between Paris' Publicis and Chicago's Foote, Cone & Belding. The deal was designed to fill strategic needs of each: a joint venture in Europe would finally give FCB the international reach it needed, while Publicis could use FCB's experience in North and South America to serve its own multinational clients.
Yet even before the ink dried on the deal, Norman Brown, then-FCB chairman, was uneasy. "I could feel a change in the Publicis attitude," he recalls. He claims Publicis began "undercutting" FCB managers in Europe--from embarrassing the FCB-designated head of the venture at social gatherings to shoving expenses from Publicis operations into the European joint venture. For his part, Publicis President Maurice Levy says he sensed similar games-playing by FCB. His feeling of betrayal broke into the open four years later. Stunned, he says, by an FCB strategic overhaul in 1994, Levy now complains: "I felt as if I had been cheated. They lied to me for years."
MONKEY WRENCH. The ambitious, cross-border venture officially ended earlier this year, after bitter and expensive divorce proceedings. But as with many divorces, the fighting didn't end with the decree. True North Communications Inc., the holding company set up in 1994 for Foote Cone, and the world's No.8 agency group, is fighting off a $28-a-share hostile takeover attempt by its ex-partner Publicis, which still owns 18.5%.
The bid could be a monkey wrench in True North's first major acquisition, a planned $440 million purchase of Bozell, Jacobs, Kenyon & Eckhardt Inc. Publicis, the world's 13th-largest agency, is intensely opposed. Not only would the acquisition make True North a more sizable chunk to swallow, it would dilute Publicis' stake to about 11%. To garner support against the Bozell purchase, Levy--with no small amount of irony--argues that this purchase would not solve True North's most pressing problem: meager international exposure.
So far, the French company's takeover of True North has been stifled by a federal court judge in Chicago. Should Publicis prevail in its appeal, it could be costly: Longtime FCB client S.C. Johnson & Son Inc., with some $500 million in billings, is threatening to walk rather than do business with Publicis. Other FCB clients include Coors, AT&T, and RJR Nabisco.
But even a victory over Publicis may not relieve pressure on True North management. Shareholders have seen their stock underperform that of rivals, such as Omnicom Group and Interpublic Group, and the broader market for years. Last spring, the company turned aside an approach at $27-a-share by Interpublic. Now, restructuring costs of up to $120 million from the Bozell deal could make True North more vulnerable. Meanwhile, Foote Cone faces the possible loss of business from Levi Strauss & Co., which has put its account under review.
Looking back now, the initial Publicis/FCB deal was fraught with danger, although it did provide True North with up to 80% of its earnings in one year. "This is much more profound than a bit of mud-wrestling" between a few executives, says True North independent director Richard S. Braddock, a former Citicorp president who is supposed to be nonexecutive chairman of a merged True North/Bozell. "Running a joint venture across boundaries increases the risk."
The very structure of the deal contained problems. First, Levy, now 55, gained 51% control of the European operations. But FCB had little choice, says one former FCB exec. "Every international client had chosen an agency, and FCB didn't have one," says one former Publicis-FCB executive. FCB's own operations in Europe were lackluster. "Levy was the only game in town." After Brown's retirement in 1991, the already fraying relationship was left to his successor, Bruce Mason. Now the 57-year-old chairman of True North, Mason was the only FCB director to vote against the joint venture. Why? "I didn't feel we should give up control. We didn't need him," says Mason. But, he says, Levy needed FCB to handle its big clients in the U.S., such as Nestle and L'Oreal.
"BLEEDING SCAB." Battles for control and personality clashes arose immediately. Early in his tenure, Mason wanted the venture to be audited by Arthur Andersen & Co.; Levy refused. There were allegations that Publicis wasn't helpful with FCB visa applications. "It was death by a thousand cuts, creating one huge, bleeding scab," says a former FCB exec. Levy dismissed Mason as "a Midwesterner."
The first dustup occurred in late 1993: Publicis acquired French agency Groupe FCA!, with its two-office U.S. unit, called Bloom. Mason felt it violated the terms of the joint venture, and in September, 1994, FCB filed for an arbitration hearing, a less hostile move than suing. Then, at a board meeting in Madrid, Mason unveiled the new True North structure and revealed plans for a range of acquisitions. "I was the only one [of the FCB outside directors] who knew nothing," Levy claims. "I was hurt." True North insists Levy was informed.
Formal divorce proceedings ensued. Mounting frustration within True North over Publicis and Mason's strategy prompted an attempted boardroom coup against Mason. In June, 1996, the issue came to a vote and Mason hung on, in part because client S.C. Johnson, wielding its clout, threatened to bolt if Mason was ditched. Still, the board stripped Mason of responsibility for dealing with Publicis.
And what of True North's future? Mason is determined to seal the Bozell deal and bring in Bozell's longstanding Chrysler Corp. account. Unable to do business with Levy, at least Bozell's senior managers, notes Mason, are "Midwestern like us."