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Leo Burnett on Its Own No More

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BDM Formed as Gotlieb's Departure Resurrects MacManus Talks
By Aaron Baar and Kathleen Sampey
CHICAGO--During a Labor Day weekend vacation on Cape Cod, Roger Haupt was preoccupied with reports that MediaVestWorldwide chief Irwin Gotlieb had left The MacManus Group to join WPP. What if, he asked his wife as they strolled the beach, Burnett and Dentsu, which had been in lengthy negotiations to form an alliance, invited MacManus into their proposed partnership?
A year earlier, the Burnett executive had been negotiating a merger between the agency's Starcom media unit and MediaVest. The deal was thwarted, at least in part, by conflicts between Gotlieb and Burnett executives over leadership issues, sources said.
But with Gotlieb off to run WPP's Mindshare, Haupt saw an opening.
He grabbed his cell phone to share the thought with longtime Burnetter Rick Fizdale (with whom, beginning in January, he was to share leadership of the new Leo Group holding company). The two set up a late September meeting in Tokyo with Dentsu president Yutaka Narita. With Dentsu's endorsement, Haupt made the call to MacManus chief executive Roy Bostock.
Haupt and Bostock had got to know each other during the failed talks between Starcom and MediaVest. "Roy and I are not strangers," Haupt said. "It wasn't as if I said, 'Let me make a cold call.'"
An Oct. 5 meeting over turkey and tuna sandwiches at MacManus' corporate apartment on Madison Avenue kicked off a flurry of meetings that led to last week's agreement to merge The Leo Group and The MacManus Group, with 20 percent Dentsu ownership. The entity, tentatively dubbed BDM, is expected to go public late next year, ending Burnett's long-vaunted independence. The company's market value was put at $3.5-4 billion by Prudential analyst Jim Dougherty. (By contrast, Young & Rubicam's market value was estimated at $1.5 billion prior to its IPO last year.)
BDM will be based in Chicago and oversee such agencies as Leo Burnett, D'Arcy Masius Benton & Bowles, Kaplan Thaler and N.W. Ayer & Partners, as well as Burnett's Starcom Worldwide and MacManus' MediaVest media companies. The company will have more than $1.7 billion in annual revenues, 500 operating units in 90 countries and 16,000 employees.
The company's shared clients include General Motors, Coca-Cola, Philip Morris and, perhaps most importantly, Procter & Gamble. Haupt and Bostock said the Cincinnati-based company had no input in the merger negotiations. Company officials were informed only as talks neared an end, Haupt said. (Interpublic was also interested in acquiring MacManus, sources said.)
BDM officials dismissed the notion of possible client conflicts because the individual agencies are remaining separate. They contend Delta Airlines (at Burnett), Trans World Airlines (D'Arcy, St. Louis) and Continental Airlines (N.W. Ayer) can easily co-exist.
All sides agreed Dentsu will be able to continue its affiliation with Young & Rubicam through the DY&R network in Asia and office in Tokyo and The Lord Group in New York. "We are committed to maintaining this partnership, which has been one based on nearly two decades of mutual trust and respect," said Dentsu's Yutaka Narita.
The Japanese agency will have a 20 percent stake in BDM, allowing it to continue to expand internationally.
The deal comes after years of organizational tumult at Burnett, which has struggled to remain viable next to better-financed competitors. Fizdale said the merger would not have troubled the shop's legendary founder. "Leo will not be turning in his grave, nor will we take his name off the door," he said.
According to Fizdale, the founder's retirement contract contained clauses of how many shares he would get if his immediate successors took the agency public. "Even then, he understood that [going public] was something that generations of management would have to consider," Fizdale said.
Fizdale noted the marketplace required Burnett get bigger or face "marginalization" without access to public funds. The Leo Group was too small to go public on its own, he said. "We would have been too small to defend ourselves from a hostile takeover," he said.
Bostock said there will be layoffs before the IPO to eliminate redundancies in back-office operations. He declined to elaborate.
Many observers agreed the deal makes solid business sense. "It's a natural," one rival holding company executive said. Inside Burnett, the mood was also receptive. "I think a lot of our people now see there is a clear future," said Michael Conrad, Burnett's worldwide creative chief.
--with David Kilburn in Tokyo