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TN, Publicis War Continues

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Proposed Deal to Separate the Pair Has $30 Mil. Sting
CHICAGO--Yogi Berra was talking about a baseball game when he said, "It ain't over 'til it's over." But the legendary player could just as well have been analyzing the gamesmanship between True North and Publicis.
TN was initially enthusiastic about Publicis S.A. chairman Maurice Lƒvy's intentions to absorb its Publicis Communication division. TN saw it as the means it had sought to sell its stake in the nonpublic Publicis Communication unit and move closer to total separation from the French company.
But nothing is simple between these allies-turned-antagonists. TN did the math and discovered the terms of the Publicis maneuver would result in a nearly $30 million loss on paper for the Chicago-based network.
TN is reviewing its options, which sources said may include legal proceedings.
A year after TN chief executive officer Bruce Mason's grand plan to acquire Bozell, Jacobs, Kenyon & Eckhardt was nearly derailed by lawsuits filed by Lƒvy and Publicis, the two networks' tweaking of each other is not nearly finished.
In Paris, Publicis S.A. representative Seth Goldschlager said if TN is unhappy with the proposed stock swap, TN "has the rights of all stockholders to vote their shares the way they want to." That neatly echoed TN's position a year ago when Publicis opposed the BJK&E acquisition. TN's majority position carried that merger proposal as Publicis S.A.'s controlling interest will surely approve the stock swap.
Per TN's Nov. 13 10-Q filing with the Securities and Exchange Commission, Publicis S.A. last month "announced its intention to acquire True North's 26.5 percent investment in Publicis Communication, a majority-owned subsidiary of PSA, through the issuance of approximately 792,076 of its publicly traded shares. As a result, True North would own approximately 8.8 percent of PSA."
So far, so good for everyone.
However, TN's filing points out that as of Sept. 30, the "book value of True North's investment in PC was $162,748,000. The fair value of the PSA shares (based upon a Nov. 9 PSA closing price of $175.38 per share) was $138,913,000." Accordingly, if this transaction is consummated, True North would record a pretax loss of almost $30 million in the fourth quarter as a result of this involuntary conversion of its investment in Publicis Communication to shares of Publicis S.A. In addition, True North would record a deferred tax obligation of about $5 million upon the exchange.
"As a result, the after-tax impact of this transaction would be a loss of approximately $28,835,000," the report stated.
The transaction awaits ratification by stockholders of both Publicis S.A. and Publicis Communication (of which the parent owns the portion that TN does not) at special shareholders meetings Dec. 11.
For Lƒvy, who was angered that the TN/BJK&E deal lowered his stake in TN from 18.5 percent to 11 percent, the reduced book value of TN's stake in Publicis may be a payback.
With $28.8 million at stake, however, TN still could try to trump Lƒvy's ace once again.
One analyst said he doubts TN has legal recourse, saying the matter is simply a TN investment that has turned out to be lower in value than anticipated. "That's not something you can sue over," he said.
The value of TN's Publicis S.A. stock could rise--or fall--and TN may hang on and gamble on an increase. Lƒvy has said that he has no immediate intention to sell his 11 percent stake in TN. So the two sides may just continue to circle each other.
According to the filing, TN "is evaluating its contractual rights under the 1997 Separation Agreement with respect to this transaction." The Separation Agreement, signed on May 19, 1997, was intended to resolve the acrimonious dispute between Publicis and TN, dissolving their agency joint venture in Europe and freeing each to pursue development of independent networks.
The deal also gave TN a way to divest its 26.5 percent equity stake in Publicis communication, with Publicis agreeing to use its "best efforts to cause its common stock to be listed on a major European stock exchange no later than Dec. 31, 1998." The French agency said its plan to merge Publicis Communication into Publicis S.A. fulfills that agreement. If TN finds a legal basis for challenging the deal, it will need to move quickly to beat that deadline.
It ain't over 'til it's over.