Three of the biggest names on Madison Avenue yesterday announced an unusual merger that would create the world's largest advertising agency.
BBDO International Inc., Doyle Dane Bernbach Group Inc. and Needham Harper Worldwide Inc. said the new agency would have billings of about $5 billion.
"I think the whole idea is to create a worldwide superpower, in terms of creative product," said Barry Loughrane, chief executive officer of Doyle Dane Bernbach. "We think that is what our clients want, and we think this will enable us to deliver that."
"You can't ignore the fact that there is merger mania going on among ad agencies and among our clients," said Allen Rosenshine, chief executive officer of BBDO, who would be chairman of the merged agencies. "I would say there is a pressure to achieve a critical mass that will leave you capable of attending to your business."
Rosenshine said the new entity, which has not been named, would be slightly larger than the Interpublic Group Cos., which has billings of about $4.7 billion. BBDO, Doyle Dane Bernbach and Needham Harper had combined net income last year of about $735 million, he said.
The three serve some of the nation's best-known advertisers. BBDO clients include General Electric Co., PepsiCo Inc. and Lever Brothers; Doyle Dane's include International Business Machines Corp., GTE Corp., Nabisco and Volkswagen; Needham's include Anheuser-Busch Cos. Inc., Amtrak and General Mills Inc.
The three-agency merger has been designed to minimize the loss of clients due to conflicts of interest. Under the proposed structure, a new public company with two independent global-agency networks would be created.
One network, DDB Needham Worldwide, would be formed by bringing together the current Doyle Dane Bernbach and Needham operations; the other network would be BBDO Worldwide, which would continue to operate as it is currently organized. The chief executives of the agencies yesterday said they are hopeful that, by keeping these networks independent, they would be able to represent competitors, such as Coke and Pepsi.
"These two networks are structured to compete with each other just as brands compete within our client companies," Rosenshine said.
In addition to the two networks, an entity called the Diversified Agency Group would be formed by the merger. That group, which would consist of various advertising and marketing services, would be headed by three executives, including Doyle Dane's Loughrane.
Rosenshine said BBDO, the largest of the three agencies, had considered merging with either Doyle Dane or Needham. However, when those companies were contacted, BBDO learned that Doyle Dane and Needham had held their own talks about a year ago. Those discussions led to the unusual three-way merger, he said.
Loughrane said one of the keys to the merger was the lack of client overlap.
"We are in Detroit, they Needham are not," Loughrane said. "We are quite large in New York. They are small in New York and they are big in Chicago, where we are nonexistent. This is pretty much the point-of-view around the world. I don't see the integration of our operations being hurtful in any way. I think volume does provide a certain degree of financial wherewithal and security for our people that perhaps smaller, more independent companies could not provide. Whether we like it or not, that is in keeping with the times."
While BBDO and Doyle Dane are public companies, Needham is private. Under the terms of the merger, approved unanimously by all three boards of directors last week, each agency's shareholders would get stock in a new public company. BBDO shareholders would receive a total of 65 percent of the stock, or 1.23 shares of the new company for each BBDO share; Doyle Dane shareholders would receive a total of 24 percent, or one share of the new company for each Doyle Dane share. Needham stockholders would receive a total of 11 percent of the stock of the new company.
The merger must be approved by antitrust regulators and stockholders of the firms.