True North-Publicis SA Alliance Has Turned Into a Tug of War
Late in the afternoon of Feb. 10, the fax machine began to hum at the Chicago headquarters of True North Communications, the advertising-agency holding company that owns Foote, Cone & Belding Communications. A news release written in French and containing disturbing news was coming over.
Publicis SA, a large French ad agency, was declaring its intention to call off its seven-year alliance with Foote, Cone & Belding, or FCB, despite a contract that prohibited one party from unilaterally walking away from the partnership.
The following Monday, FCB fired back a reply: It wanted to maintain the alliance and would press for arbitration to solve the rift, which involves cultures and strategic philosophies that have never meshed well, and mutual mistrust by executives on both sides.
It seems the bickering and legal skirmishes on Madison Avenue are no longer confined to Saatchi & Saatchi PLC, the London ad-agency holding company now at war with its two founders. Though less flamboyant than the Saatchi situation, the True North-Publicis war is being closely followed by advertising agency observers as well as the multinational clients the two companies share, such as Nestle, Colgate-Palmolive and L’Oreal.
Messy public squabbling between agencies is anathema to such clients, who hire agencies to create positive images for their products. This is doubly true in the case of Publicis and True North, who formed their international alliance largely at the suggestion of the clients they share.
Last week, a three-member arbitration panel was named at the Court of International Arbitration in London, where the grievances are scheduled to be heard. The process is expected to take six to nine months.
True North executives express bafflement as to why Publicis Chairman and Chief Executive Officer Maurice Levy wants to sever ties. Mr. Levy declines to comment. However, a senior executive close to him is dismissive of FCB executives, particularly Bruce Mason, True North’s chairman and chief executive.
``Here is a Midwestern man who has no basis in reality,″ says the Publicis executive, referring to FCB’s fight to preserve the partnership. ``This alliance is over,″ he adds. ``The china is broken, and while it may be repaired it won’t ever look the same again.″ He strongly implies that if the partnership should survive, FCB will take a back seat. Predictably, FCB doesn’t see it that way.
``The French are always difficult to deal with,″ says Mr. Mason. ``We have had our ups and downs, and we have always been able to work things out.″
The current rancor is a far cry from the day in May 1988 when the champagne first popped. Then, FCB and Publicis agreed to an alliance that would create the world’s sixth-largest advertising agency and Europe’s second-largest. The objective: to help both companies strengthen their position in Europe.
All went relatively well until October 1993, when Publicis unexpectedly announced it was acquiring the French agency group FCA. FCA’s U.S. holdings include Bloom FCA, an agency with offices in Dallas and New York that is a direct competitor of FCB. According to FCB executives, when Publicis went public with the transaction, it did so with two different news releases.
The English version said Publicis was acquiring Bloom with FCB, and that the transaction would be presented to the FCB board for approval; the French version omitted those facts. FCB executives now contend that Publicis never intended to operate the FCA acquisition through the alliance. They add that FCB’s agreement with Publicis expressly states that both parties will ``respect each other’s sphere of influence″ by forgoing acquisition of agencies that compete with the other partner.
For almost a year, the two companies negotiated to repair their increasingly unhappy alliance. Finally, with no settlement in sight, FCB decided to seek arbitration, an option included in the contract.
Their differences were kept quiet until Publicis’ bombshell on Feb. 10 calling it quits. As its reason, Publicis cited Foote, Cone & Belding’s decision to rename itself True North in December. ``The recent creation of True North was accomplished with neither consultation nor approval by Publicis,″ the company stated.
True North executives say the name change is an attempt to better position the company in ``the revolution in multinational business and technology.″ Foote, Cone was too limiting, they explain, because it reflected only one ad agency.
Mr. Mason says he ``can’t figure out″ why Publicis should be upset by the name change.
Indeed, the dispute clearly has other roots. The executive close to Mr. Levy alleges that True North management ``doesn’t have a clue about what it is like to be international,″ a shot that Mr. Mason strongly disputes. One executive close to Mr. Mason says the clients are pleased with the alliance and don’t want the boat rocked. (The major clients couldn’t be reached for comment.)
Publicis has the upper hand in the alliance, with 51 percent control to True North’s 49 percent. True North also has a 20.8 percent stake in Publicis and Publicis has a 20.3 percent stake in True North. Mr. Levy and Mr. Mason sit on each other’s boards. In fact, Mr. Levy attended the True North board meeting last week in Newport Beach, Calif. By all accounts, the gathering was cordial.
For True North, the stakes are especially high. One leading Wall Street analyst, Alan Gottesman of PaineWebber, said in a report issued Feb. 13 that ``the balance of power lies on Publicis’ side.″ Noting that most of the joint venture’s managers are Publicis veterans and that most of its clients are Europeans, Mr. Gottesman added that in the event of a split, ``True North will either have to abandon its hope of being an advertising force in Europe, or start all over. Neither choice is terribly attractive.″
Mr. Mason calls Mr. Levy’s effort to end the alliance ``a way to avoid arbitration.″
Retorts the executive close to Mr. Levy: ``We are open to negotiation. We are ready to discuss some kind of alliance, but not the same kind. This is finished.″