Burnett Sees New Capital, Dentsu A Conflict Solution
CHICAGO--The alliance of Dentsu and Leo Burnett signals a realization by both parties that remaining solo would impede their chances of reaching a common goal: To be among the handful of global superpower agencies handling multinational clients.
Neither Dentsu nor Burnett have the critical mass nor the integrated resources of their larger holding company competitors. Without a deal, both could come up short in the consolidation game now waged by major clients.
The two are discussing an alliance that could give Dentsu a minority stake in Burnett which could run as high as 20 percent. A memorandum of understanding guarantees Burnett's continued independence; the talks will not result in a merger, they said. Both sides said they expect to reach a deal on at least the financial investment by March.
Nobuo Momose, executive vice president of Dentsu in Tokyo, made it clear he views the potential relationship with Burnett as complementing his agency's ties to Young & Rubicam and their Dentsu Y&R joint venture.
"There are a number of clients who would like to utilize Dentsu's services not only in Japan, but also outside," Momose said. "And in some countries there are strict rules about account conflict, so we need three separate channels: DY&R, our own network of agencies, and, if all goes as we would wish, our new relationship with Leo Burnett."
Burnett and Dentsu share clients including Coca-Cola, McDonald's, Nintendo, Philip Morris, Procter & Gamble and Walt Disney. The alliance, however, is designed to gain new business for both partners as well as service existing clients.
"We will try to find as many mutual interests as we possibly can," said Rick Fizdale, Burnett chairman and chief executive officer..
But the key for Burnett was clearly the opportunity to gain capital to fund aggressive global expansion. "If that's all there was," Fizdale said of Dentsu's investment, "I would still do this deal. I could stop there." Burnett likely will gain more than just money, making this route more attractive than merely building lines of credit with a bank.
"We can do that, too," Fizdale said. "[A Dentsu deal and bank loans] aren't mutually exclusive. Frankly, we have a sizeable war chest" for acquisitions, he said.
Most deals will be outside the U.S., he said, and could entail increasing Burnett's media buying scale in Western Europe, a goal the now-defunct negotiations with MacManus Group's TeleVest would have met.
"With the exception of Starcom [Media Services], we do not have established global brands in specialty services, and we have to have that," Fizdale said. Burnett wants to build worldwide units specializing in healthcare/pharmaceutical advertising, direct marketing and promotions through acquisitions, sources said.
Fizdale also reiterated Burnett's intention to remain independent. He dismissed speculation Burnett needs cash to bankroll the impending retirements of top executives, including himself. "That's not our problem," Fizdale said. "I'm the largest single shareholder in Burnett and I own far less than 1 percent. There will be no problem cashing me out."
Dentsu in 1997 had worldwide billings of $14.3 billion and revenues of nearly $2 billion, ranking it fourth among global holding companies. Burnett's billings were $6 billion and $878 million in revenues, ranking it ninth.
Dentsu dominates Japanese advertising--buying about 25 percent of all media, including 40 percent of prime-time TV there. Its overseas business, however, accounts for only about 15 percent of its revenues, so it is important for Dentsu to work with as many multinationals as possible. Dentsu aims to double that percentage by 2010.
Burnett now derives about 60 percent of its billings from overseas, but knows it must continue to expand globally--now with an injection of Dentsu capital--if it hopes to remain competitive with the likes of Omnicom, WPP, Interpublic, Y&R, True North, Grey and Havas.
Informal talks with Dentsu began two to three years ago, Fizdale said; formal talks began last year and overlapped the failed MacManus negotiations. Burnett could have done both deals, he said, and likely would have completed a TeleVest media-buying merger covering Europe "a year ago" if the talks' scope had stopped there.