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Lévy Weighs Scenarios for Publicis

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With Publicis Groupe's acquisition of Bcom3 Group set to close this week, the holding company is getting closer to deciding the fate of its new and existing agency assets.

While rank-and-file staffers worry about layoffs, the deal will make a handful of senior Bcom3 executives wealthy. With 90 percent of Bcom3's 660 shareholders voting, the $3 billion deal got more than 95 percent approval last Friday. The merger creates the world's fourth-largest holding company, with $4.8 billion in revenue and 38,000 staffers in 109 countries.

Most talk last week centered on how Publicis CEO Maurice Lévy will structure his fledgling empire. Of particular interest is whether agency brands might be combined. With D'Arcy Masius Benton & Bowles, Leo Burnett and Bartle Bogle Hegarty joining Saatchi & Saatchi, Publicis and Fallon, it's unlikely that every brand will remain independent, sources said.

"My gut is they'll try to go on with the Omnicom, WPP, IPG model" of two or three large global agency networks, said Alexia Quadrani, managing director of Bear Stearns.

D'Arcy and its leaders, CEO John Farrell and chief branding officer Susan Gianinno, appear the most vulnerable. The 96-year-old shop has suffered significant client losses and a flagging creative reputation. Speculation within the Publicis Groupe shops is that "the D'Arcy brand is going to be shut down and there will be some sort of consolidation among the three [Bcom3] Procter & Gamble agencies—D'Arcy, Leo Burnett and Saatchi" said one executive.

Last Friday, Lévy said only "superficial conversation" on post-acquisition moves has taken place so far, and he denied that merging D'Arcy is on his agenda. He added: "We have more options, it is clear."

Sources said D'Arcy executives have not been told of any merger scenarios, though one executive said it was not surprising that they would be left out of the loop.

Some said D'Arcy could remain a brand in the U.S. but be merged overseas into Burnett, Publicis or Saatchi. Burnett, for example, which is strong in Asia, could absorb some offices there, where D'Arcy is relatively weak.

Agency officials declined comment or did not return phone calls.

As the holding company's largest client, Procter & Gamble will likely be consulted on any moves. Publicis shops will handle as much as three-quarters of P&G's global business.

A P&G rep would not comment on possible agency changes other than to say the company's "general principle" is to align global brands with global agencies.

Another source said individual U.S. offices of D'Arcy may be folded into Publicis properties in such a way that causes the fewest conflicts. For example, D'Arcy's New York and Los Angeles offices could join Saatchi, while Detroit could become part of Burnett. Such a solution would keep key accounts separate: General Motors (D'Arcy) and Toyota (Saatchi), as well as General Mills (D'Arcy) and Kellogg (Burnett).

A GM representative said company officials were not concerned about any changes so long as certain safeguards and staff remain in place.

With the possibility of such mergers and Lévy's public statements that he is striving for a 15 percent operating margin, staffers at Publicis agencies are naturally bracing for layoffs. Most early cuts are expected to be at the holding-company level, though it is unlikely those would make much of a dent in the bottom line.

One thing is certain: Several top executives will get very rich, though only a few will do so instantaneously.

Bcom3's board members—CEO Roger Haupt, COO Craig Brown, former Leo Group CEO Rick Fizdale and former Bcom3 chairman Roy Bostock—own a collective 9 percent of the company, according to SEC filings. At the deal's close, the four stand to split $57 million in cash and share another estimated $243 million (based on a preliminary valuation of the deal) in Publicis stock and equity-linked securities.

Their exact ownership stakes are not known, though it is likely that agency stalwarts Fizdale and Bostock own more than Haupt and Brown, sources said.

A preliminary valuation by Morgan Stanley pegged the entire cash and securities package at $172 per Bcom3 share, based on a Publicis price of 33.55 euros (about $30). Publicis' price was 19.20 euros ($18.83) at Friday's close.

Sources said several other top Bcom3 agency managers could make $15-20 million each as a result of the deal.

The top money makers are subject to the same selling restrictions as the lowest shareholders. To prevent a flood on the market, the stock becomes available in six-month increments over two years. The equity-linked securities and warrants vest over a four-year period.