Does Draft/FCB Merger Make Blamer Odd Man Out?

As Foote Cone & Belding, Draft and Interpublic Group continued talks regarding a "partnership" of the two agencies last week, two things became increasingly clear: The only model CEO Howard Draft is interested in pursuing is a straight-up merger, a scenario that may leave little room for FCB CEO Steve Blamer. Sources said that up until early last week, Blamer was still pushing for a mini-holding company model in which the two agency brands would remain separate but report to Howard Draft. But that structure has been taken off the table, sources said, and in the event of a merger with Howard Draft as CEO-designate, Blamer is mulling his possible exit after only 11 months at FCB. "Howard's vision is to create a single-source agency that's behavioral driven," said one executive. The advantage of the straight merger rather than a mini-holding company is to create a stronger service offering, sources said. Draft's direct-marketing prowess and FCB's traditional client base could differentiate the new entity from the large, multi-layered McCann Worldgroup (which does not have a single P&L), the smaller, creatively driven Lowe, and the U.S.-focused Deutsch. "The model Howard wants is a single P&L, through-the-line agency so that it won't matter if a client wants digital or direct or a promotion or a TV campaign," the executive added.One complicating issue is account conflicts. During the May 10 earnings call with analysts, IPG CEO Michael Roth acknowledged that conflicts were "the most significant gating factor" in whether a merger would proceed. And it's still not a fait accompli, with one source close to the talks predicting it is 80 percent likely. Roth also delivered IPG's less-than-stellar first quarter results: a $182.1 million net loss for the first quarter of 2006—compared to a $151.4 million loss in the same period last year—on flat revenue of $1.33 billion. A Draft-FCB merger could achieve back-office efficiencies if completed with little or no client disruption.New York-based FCB shares clients S.C. Johnson, Coca-Cola and Hewlett-Packard with Chicago-based Draft. But there are two significant conflicts in FCB's Motorola and Qwest accounts with Draft's Nokia and Verizon businesses. "Those are the two they are focusing on right now," said a source. Other entanglements may be Kraft's Chips Ahoy! and Oreos accounts with Draft's Kellogg's Keebler cookies business, and Hershey's Bubble Yum at FCB with Draft's Masterfoods' candies. To deal with those, IPG is thinking about shifting work to some of its other agency brands, sources said. Draft has a subsidiary in The Sloan Group. Marketing Drive and Zipatoni are affiliated with FCB. IPG "independents" such as Deutsch, The Martin Agency or Mullen are other options for shifting conflicting business, one source said.The source added that Hershey is comfortable co-existing with Masterfoods and vice versa, partly because what FCB does for Hershey's Bubble Yum is different than what Draft does for Masterfoods' candy products. A Masterfoods representative declined comment. Calls to Kraft, Nokia and Motorola were not returned. As for the working relationship between Blamer and Draft, sources described it as less than smooth as each man was fiercely committed to his own vision for the companies going forward. "We're not commenting on speculation and rumors regarding any relationships either between people or clients," said FCB representative Jan Sneed. Howard Draft declined comment through a representative. Executives are trying to complete a viable plan for the agencies for some point in June, and Roth is expected to touch on the situation at the shareholders meeting on Thursday, according to sources.

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Does Draft/FCB Merger Make Blamer Odd Man Out?

Aaron Baar

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Aaron Baar