Three Agencies Plan to Form Largest Ad Firm

Three of the nation’s largest advertising agencies--BBDO International, Doyle Dane Bernbach Group and Needham Harper Worldwide--said Sunday they are combining to form the largest advertising agency holding company in the world.

The three New York agencies, each of which has offices in Los Angeles, will operate under a new holding company that will have combined media billings of about $5 billion a year. The companies said their merger is the first three-way combination in the U.S. advertising industry.

The move is the latest in a string of mergers and acquisitions in the advertising industry, which has been troubled by slower growth because of a slump in television advertising.

Client Lists

BBDO International, formerly Batten, Barton, Durstine & Osborne, had 1985 billings of $2.5 billion. Its clients include Dodge, Wrigley, Pepsico, Frito-Lay and General Electric.

Doyle Dane Bernbach, with billings of $1.7 billion last year, lists American Greetings, Borden consumer products, Celanese Fibers and Nabisco among clients. Privately held Needham Harper, with $847.3 million in billings, has the California Lottery, American Honda, Campbell Soup, Clorox, Frigidaire and General Mills as clients.

Allen Rosenshine, chief executive of BBDO International, said in an interview that the merger was not contemplated “simply with the view of getting bigger.” He said: “We want to be nothing less than advertising’s global creative superpower.” Rosenshine will become chairman and chief executive of the new holding company, which has yet to be named.

The new company is to be structured so as to minimize potential client conflicts, Rosenshine said. It will have two separate and independent global agencies: BBDO Worldwide will remain essentially as is, but Doyle Dane Bernbach and Needham Harper will be combined into DDB Needham Worldwide.

Rosenshine emphasized that the two agencies will be structured to compete with each other “just as brands compete within our client companies.” He added that a detailed analysis showed that the potential loss of revenue would be relatively low and that “the separate and independent operating policies and procedures that will govern the subsidiaries will help us keep conflict concerns to a minimum.” He declined to say what the revenue loss might be.

BBDO’s operations in New York will remain intact, but those of Doyle Dane and Needham in that city will be consolidated. Both BBDO and Doyle Dane, which are publicly held, have offices in San Francisco and Los Angeles, while Needham has offices in Los Angeles and San Diego. Rosenshine said he could not comment on plans for the offices on a city-by-city basis.

A third unit of the new company, to be known as the Diversified Agency Group, will oversee the various independent companies of all three agencies engaged in general advertising and marketing services.

The merger announcement follows an acknowledgement last week by Doyle Dane that it was involved in “business consolidation discussions,” but the firm would not comment on speculation that it involved a three-way merger. The agency has been troubled recently by the loss of some accounts, executive departures and declining profits.

The merger of BBDO, Doyle Dane and Needham was approved by the boards of directors of all three firms in special sessions last week. Under terms of the merger agreement, BBDO shareholders will receive about 65% of the stock of the new holding company. DDB shareholders will own about 24% and Needham Harper shareholders will get about 11%.

The companies said these ratios “were based on a merger-of-equals approach in which each company received new shares in amounts commensurate with their current market value and their contribution to the whole.” BBDO’s 6.4 million outstanding shares are worth $216 million, based on Friday’s closing price of $33.75 a share on the over-the-counter market. Doyle Dane’s 5.3 million shares were valued at $133.8 million, based on Friday’s OTC close of $25.25 a share.

The transaction is subject to approval by shareholders of each agency.