ON Sunday, Fallon McElligott, the creatively focused agency known for risk-taking, rule-breaking work for brands like Holiday Inn, Miller Lite, Timex and United, enjoyed what was deemed its biggest day ever, running four clutter-busting spots during Super Bowl XXXIV for BMW, EDS and Nuveen Investments.

Yesterday, though, Fallon McElligott topped its Super Sunday lineup of imaginary auto trips, cat-herding cowboys and a "walking" Christopher Reeve with a real stunner: an agreement to be acquired by a worldwide holding company after years of fiercely declaring it would resolutely remain independent.

It is starting to sound like a broken record — if such a simile is still relevant in an era of CD's and tapes — but here Madison Avenue goes again: another creatively oriented independent shop is being bought by a global giant.

In this instance, the acquirer is the Publicis Group unit of Publicis S. A. in Paris, the world's 10th-largest agency company in revenue and 12th largest in billings. Fallon McElligott and its subsidiary, Duffy Design and Interactive, will become the second agency network of Publicis alongside Publicis Worldwide, operating autonomously under its current name and management.

Fallon McElligott, which was founded in 1981, joins a lengthy list of formerly independent "hot shops" that includes Arnold Communications; Chiat/Day; GSD& M; Goodby, Silverstein & Partners; Hill, Holliday, Connors, Cosmopulos; the Martin Agency; and Hal Riney & Partners.

"The world has changed significantly; globalization has become relentless," Patrick R. Fallon, chairman at Fallon McElligott, said in a telephone interview from the agency's Minneapolis headquarters. "And being independent, self-financed, we had limitations.

"We spent a lot of time looking at our future, how to serve clients better," he added, "and we felt that unless we made some sort of strategic move, we'd atrophy. Now we're in a very strong position to compete in areas we couldn't on our own."

Fallon McElligott, which had been privately held, and Publicis, which though publicly traded is reticent to disclose financial data, declined to discuss terms of the deal apart from an aside by Mr. Fallon that Publicis "didn't pay enough."

But shops like Fallon McElligott, which have long been sought for their creative cachet and growth potential, often sell for a price equal to one to two times revenue. The agency's 1999 revenue was estimated at more than $80 million.

The daily fax edition of the trade publication Advertising Age, quoting an unidentified individual, estimated the price at $120 million.

"When it comes to money, I'm speechless," said Maurice Levy, president and chief executive at Publicis, who joined Mr. Fallon for the interview as well as to inform the agency's 650 employees in Minneapolis, London and New York about the deal in person and by video conference.

"This is not about revenue or size," Mr. Levy said. "It's about building a community of people to bring the very best ideas to clients to build market share and brands."

Still, size does matter, particularly in the United States, the world's largest advertising market. Since 1997, when Publicis lost a bitter hostile takeover battle for Bozell, Jacobs, Kenyon & Eckhardt to its onetime partner in Europe, True North Communications, Publicis has frenetically increased its presence in this country through a skein of acquisitions. Publicis has bought agencies like Riney, the Evans Group and Frankel outright and purchased 49 percent of the Burrell Communications Group, which specializes in ads aimed at black Americans.

"With our deal with Frankel in January and this one, we double our size in the U.S.," Mr. Levy said, to an estimated $400 million in revenue of the worldwide Publicis total of about $1 billion.
"This is now my favorite place," he added, laughing, referring to the Midwest, the home of Publicis agencies like Burrell, Fallon McElligott and Frankel, and Publicis clients like the Whirlpool Corporation.

Mr. Levy said he was "very much surprised" that he and Mr. Fallon were able to keep the news of the acquisition from the gossipy agency industry. They met in Minneapolis in late July, they recalled, brought together by a mutual friend, Laurel Cutler, the longtime agency executive who served on the True North board with Mr. Levy.

"Three, four years ago," Mr. Fallon said, "Maurice called me and I wasn't responsive. We didn't even meet. But things were different at that time." Others interested in Fallon McElligott during the 1990's included True North.

Now as then, Mr. Fallon said, "we didn't shop this agency," referring to himself and his colleagues who own Fallon McElligott shares, "and we didn't hire an investment banker."

Rather, he added, "we met someone we felt understood who we could be."

"To others, we represent revenue. To Maurice, we represent a world of possibilities."

That is symbolized by Mr. Levy's decision to make Fallon McElligott the second Publicis worldwide agency network, a resource he has long coveted. Larger rivals like the Interpublic Group of Companies, the Omnicom Group and the WPP Group operate two or three global networks, which maximize growth opportunities by minimizing the potential for client conflicts.

Mr. Levy said he might transfer some Publicis Worldwide holdings to Fallon McElligott, but Mr. Fallon said his "inclination is toward starting from scratch, building 10 or 12 great offices in 10 or 12 world business centers." The agency's London and New York outposts have proved successful, landing clients like the BBC, Etour, Georgia-Pacific, the MTV unit of Viacom and the Skoda unit of Volkswagen.

Fallon McElligott's total billings for 1999 were estimated at more than $700 million. Other clients include BMW of North America; the Holiday Inn unit of Bass;; EDS; Nikon; Nordstrom; Nuveen Investments; the Starbucks Coffee Company; the Time Inc. unit of Time Warner; the Timex Corporation; the United Airlines unit of the UAL Corporation; and the Lee Company unit of the VF Corporation.

The most recent large account that Fallon McElligott lost was Miller Lite beer, from the Miller Brewing Company unit of the Philip Morris Companies. Miller dismissed Fallon McElligott after its offbeat campaign, once centered on an imaginary adman character named Dick, upset wholesalers and failed to increase sales. Fallon McElligott held onto the United account after agreeing to replace an unusual campaign, which carried the theme "Rising," with more conventional ads.

Billings for Publicis last year were estimated at $6.7 billion, from clients like British Airways, Coca-Cola, the Saturn division of General Motors, L'Oreal, Nestle, Sara Lee and Whirlpool.

Publicis will pay for Fallon McElligott with cash on hand and debt; the deal is to close by mid-March. Publicis shares closed at 517 euros ($502) in trading yesterday in Paris, up 48 euros, or 10.2 percent.

With this deal, the ranks of the big creative independents have dwindled to a handful of holdouts like Deutsch Inc. and Wieden & Kennedy.

Asked if he planned more acquisitions, Mr. Levy said: "Yes, we do. You draw up your own list and we'll compare the next time I'm in New York."

By: admin

  • Stay inofraimtve, San Diego, yeah boy!

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