True North Communications Inc.

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True North Communications Inc.

101 East Erie Street
Chicago, Illinois 60611-2897
U.S.A.
(312) 425-6500
Fax: (312) 425-6350

Public Company
Incorporated: 1994
Employees: 11,000
Gross Billings: $11.5 billion (1997 est.)
Stock Exchanges: New York
SICs: 6719 Holding Companies Not Elsewhere Classified; 7311 Advertising Agencies; 8743 Public Relations Services

True North Communications Inc. became the sixth largest advertising holding company in the world following its 1997 acquisition of Bozell, Jacobs, Kenyon, and Eckhardt Inc. (BJKE). With an estimated 11,000 employees worldwide and projected annual billings of $11.5 billion, True North was now in a league with the industry’s biggest players, such as Interpublic and Omnicom. The acquisition added a second major international advertising network, BJKE’s Bozell Worldwide, to its primary advertising network, Foote, Cone & Belding (FCB). In addition, True North was the parent company of a group of online advertising agencies that it planned to spin off as an independent company. It also owned several other diversified advertising, marketing, and public relations firms.

Dispute with Publicis Leads to Company Formation in 1994

The formation of True North Communications as the parent company of Foote, Cone & Belding came about as the result of a dispute between FCB and its global partner, Publicis S.A. of France. In 1988 Publicis S.A., an international advertising agency with offices in 19 countries and more than 100 subsidiaries, entered into a global alliance with FCB. Under the terms of the agreement, Publicis would represent clients in Europe, Africa, and the Middle East. FCB would cover North and South America, South Africa, and the Asian Pacific area. By agreeing to work through its partner for any work outside of its assigned region, each firm was able to offer its clients global representation.

Through an exchange of stock, the two companies established a European joint venture called Publicis/FCB to control their activities. Publicis held 51 percent of the stock in the joint venture, and FCB held 49 percent. The joint venture satisfied Publicis’s need for a presence in North America, and it gave FCB a much-needed international presence to serve its multinational clients.

By 1993 Publicis had decided it needed more of a presence in North America. It acquired the French firm Groupe FCA, which owned the U.S.-based Bloom FCAL agency. FCB challenged the acquisition, stating that it violated the terms of the joint venture. When Publicis refused to back down, FCB established True North Communications, a new holding company, in part to develop international business and partly to create a multi-agency network. In December 1994 the formation of True North was announced, and True North became FCB’s parent company. Publicis held an 18.5 percent interest in True North. Meanwhile, the two companies went into arbitration to settle their differences.

True North Began a Series of Acquisitions

Although True North was formed as a holding company to create a multi-agency network, no major acquisitions were made in the first nine months since the formation of True North was announced in December 1994. Analysts speculated that True North was taking its time because of FCB’s experience in the 1980s with a string of unsuccessful acquisitions. Then True North began buying more agencies. In 1996 it completed six acquisitions, bringing the total number of acquisition since 1992 to 26.

Differences Settled with Publicis, 1996

After two years of arbitration with Publicis, the cooperative pact was terminated, but the joint venture continued to operate. True North gained control of the international FCB operations through a restructuring of the joint venture with Publicis. According to True North’s 1996 annual report, “All of our outstanding disputes [with Publicis] have been resolved.” True North increased its ownership in Publicis to 26.5 percent and saw itself as a partner helping Publicis expand globally from its European base. Meanwhile, True North was globally positioned with its own operations in Europe and 60 countries around the world. Responding to FCB’s new international strength, clients consolidating their global account assignments brought their business to FCB. In 1996 these included S.C. Johnson, Tambrands, Kimberly-Clark, and Cadbury.

Reorganized into Three Operating Units, 1996

In 1996 True North was organized into three groups: 1) Foote, Cone & Belding (FCB), 2) TN Technologies, and 3) Associated Communications Companies. FCB was the largest. Brendan Ryan was named CEO of this group. TN Technologies, headed by Greg Blaine, was focused on interactive, or digital, marketing and advertising opportunities. Associated Communications Companies, headed by Mitch Engel, was organized to include a variety of marketing services companies and began with $50 million in revenue.

Within FCB, a new, fully owned and controlled network in Europe was formed. It began with $1 billion in billings and operated in 19 countries. It included the Wilkens International network, acquired in January 1997, and four large FCB operations. Based in Hamburg, Germany, Wilkens International’s network consisted of owned and affiliated agencies located in 19 European countries with billings of $700 million and 500 employees. Major clients included Beiersdorf, SEAT, Hero, Lindt, Cadbury, and Panasonic. The new FCB Europe consisted of wholly owned FCB offices in Paris, London, Lisbon, and Athens, plus the newly renamed FCB/Wilkens in Hamburg.

Domestically, FCB maintained its number one ranking by its broad geographic strength. The company boasted more than $1 billion in billings on each of the coasts through FCB New York ($1.2 billion in billings) and FCB San Francisco (known for its award-winning Levi Strauss & Co. ads). FCB Chicago was also approaching $1 billion in billings through the integration of Bayer Bess Vanderwarker into FCB.

Upon its formation, TN Technologies immediately became the largest company in the rapidly growing digital marketing services industry. With the acquisition of Modem Media in October 1996, TN Technologies was expected to exceed $60 million in revenue during 1997, almost exclusively from digital-based assignments. No other agency in the industry came close to that level of billings. (By 1997, though, interactive ad rival CKS Inc. of Cupertino, California, boasted $135 million in revenue and was the largest player in the online advertising business. It had reported 1995 revenue of $35.4 million and expected to top $55 million in 1996.)

Under the terms of the merger, Modem Media received $25 million in True North stock at closing and another $4 million if the IPO was completed. Modem’s principals retained about a 45 percent interest in the combined company. Modem generated about $11.5 million in revenues in the year prior to the merger. Its primary client was AT&T, which accounted for some threequarters of its revenue. Combined with TN Technologies’ approximately $20 million in revenue and strong growth in interactive advertising, the combined company was projected to generate $45 to $50 million in revenues, an estimate that was later revised upward to $60 million in True North’s annual report for 1996. The combined units had offices in six cities worldwide. Although an IPO was pursued, it never developed.

Employing the expertise of TN Technologies, True North launched separate global intranets for local S.C. Johnson clients and local Kimberly-Clark clients. The global intranets made it possible for clients and agency staff to collaborate on advertising and marketing development. Internally, the company’s intranet was known as True North Knowledge Network.

At the end of 1996, chairman and CEO Bruce Mason was able to confidently state, “True North is in the strongest competitive position in its history.” The company reported net income of $27.8 million on revenue of $493.1 million and had $8.2 billion in capitalized billings.

True North Acquired a Major Competitor, 1997

In July 1997 True North announced it would acquire Bozell, Jacobs, Kenyon, and Eckhardt Inc. (BJKE) for about $440 million in stock. The deal was reached after a three-year courtship. It created the world’s sixth largest advertising company, according to the Los Angeles Times, and doubled True North’s size. The merged company would have combined billings of $11.5 billion and more than 11,000 employees worldwide.

BJKE’s flagship agency was Bozell Worldwide, whose clients included the Chrysler Corporation, Merrill Lynch, and Bristol-Myers Squibb. Bozell created the award-winning Jeep campaign for Chrysler as well as the popular milk mustache campaign for the National Fluid Milk Processor Promotion Board.

Following the merger, which required the approval of True North’s shareholders, Charles D. Peebler, Jr., BJKE’s chief executive, was slated to become president of True North. True North’s chairman and CEO Bruce Mason would continue as True North’s CEO, but he asked outside director Richard Braddock to assume the role of chairman. Braddock was a former president and chief operating officer of Citicorp. Braddock became the nonexecutive chairman and was expected to act as a buffer between Mason and Peebler, either of whom could eventually gain the top spot at the company.

Peebler also became chairman and CEO of True North Diversified Companies. The Diversified Companies Group would include all of the operating units of the combined companies except Bozell Worldwide and Foote Cone & Belding Worldwide, which would continue to operate as independent advertising agencies.

The BJKE units falling under True North Diversified Companies included Poppe Tyson (an interactive advertising agency), Temerlin McClain (an ad agency whose clients included American Airlines and J.C. Penney), public relations firm Bozell Sawyer Miller Group, marketing communications company McCracken Brooks, and Bozell Wellness Worldwide (a network of multinational companies specializing in healthcare advertising).

The True North units now organized under True North Diversified Companies included TN Technologies, Wahlstrom & Co. (a Yellow pages ad agency), Tierney & Partners (Philadelphia’s largest ad agency), Borders, Perrin and Norrander (a creative ad agency located in the Pacific Northwest), and Market Growth Resources (sales promotion agency).

One of the units acquired in the BJKE transaction was the New York-based on-line advertising agency Poppe Tyson Inc. It was expected that it would be combined with True North’s TN Technologies Inc., which had an estimated $70 million in revenues. A combined TN Technologies and Poppe Tyson was expected to generate some $120 million in billings, making it a close second to the online advertising leader, CKS Inc. of Cupertino, California, which was expected to generate $135 million in revenues in 1997. Grain’s New York Business speculated that a combined TN Technologies and Poppe Tyson, both of whom had attempted unsuccessful IPOs in the past, might make a public offering.

The merger emphasized True North’s desire to become one of the world’s largest advertising agencies. It gave True North a much sought after second network of agencies. It put the company in league with the industry’s biggest players, such as Interpublic and Omnicom. The world’s largest advertising company, in terms of billings, was the WPP Group of England.

Following shareholder approval of the acquisition on December 30, 1997, Reuters noted that it “represented a major victory in one of advertising’s most bitterly fought corporate battles between True North’s Mason and Maurice Levy, chairman of France’s Publicis S.A., who had tried to block the acquisition.”

Publicis Failed in Its Hostile Takeover Attempt in 1997

After a history of wrangling, Publicis made a hostile takeover bid for True North in November 1997. The bid was valued at about $577 million and was rejected by True North. Publicis owned about 18.5 percent of True North’s 25.3 million shares and offered to buy the rest for $28 a share in cash and stock. The takeover attempt came while True North was in the process of completing its announced $440 million purchase of Bozell, Jacobs, Kenyon, and Eckhardt Inc. (BJKE). When Publicis sued True North for breach of fiduciary duty to the company’s shareholders and tried to block the BJKE acquisition, True North countersued.

In December Publicis was forced to withdraw its hostile tender offer for True North after a federal judge in the United States enjoined Publicis from pursuing the bid. According to Judge Joan Gottschall’s ruling in the U.S. District Court for the Northern District of Illinois, Publicis was violating an agreement between the two companies to dissolve its partnership. That agreement had been signed in February 1997. Later in December a Delaware Chancery Court made a similar ruling in a related lawsuit that prevented Publicis from interfering with True North’s acquisition of BJKE.

With the obstacles removed from its acquisition of BJKE, True North completed the merger and continued its strategic acquisitions. It appeared set on a course to compete head-on with some of the world’s largest advertising networks. During the first nine months of 1997 it acquired agencies in India, Singapore, Venezuela, and Europe. For the nine months ending September 30, 1997, True North reported an increase of 27 percent in revenues over the previous year. Excluding acquisitions, revenue increased 10.7 percent as a result of new business. Then, in the fourth quarter, the company took a pre-tax charge of $131 million for restructuring costs and costs associated with the BJKE acquisition. That one-time charge caused True North to report a net loss of $50 million for fiscal 1997 on revenue of $1.2 billion.

Principal Operating Units

Foote, Cone & fielding; Bozell Worldwide; True North Diversified Companies (including TN Technologies Inc., Wahlstrom & Co., Tierney & Partners, Borders, Perrin and Norrander, Market Growth Resources, Poppe Tyson Inc., Temerlin McClain, Bozell Sawyer Miller Group, McCracken Brooks, and Bozell Wellness Worldwide).