Ad Agencies Near Agreement on Merger : Britain’s Saatchi & Saatchi Seeks to Purchase Ted Bates Worldwide
Saatchi & Saatchi PLC, the British advertising agency, was close to an agreement late Friday to purchase the Ted Bates Worldwide agency in a merger that would create the world’s largest advertising firm, according to analysts and industry sources.
They said the principals in the two agencies, which had combined 1985 billings of $6.1 billion, remained in disagreement on the purchase price, though talks were held for most of the week. The Bates agency, the world’s third largest with $3.1 billion in bookings, has scheduled a press conference for Monday in Manhattan.
A deal would continue a rapid merger trend among advertising agencies and would realize the British agency’s long-expressed ambition to become the world’s largest. Saatchi is now the fourth largest, with 1985 billings of $3 billion. (Billings are the cost of ads placed through an agency. Agencies are typically paid 15% of billings.)
Saatchi executives maintain that large ad agencies will be needed as the packaged-goods companies and other heavy advertisers continue to merge. They contend that large worldwide agencies will be needed to handle these companies’ needs, noted Charles Crane, analyst with the Oppenheimer & Co. investment bank in New York.
Industry officials have also noted that some big advertisers have recently reduced the number of agencies representing them. Eastman Kodak, for example, has two agencies where it once had dozens.
The combined agency would presumably be forced to give up some Bates clients whose competitors are already represented by Saatchi. Among the losses, for example, might be Colgate-Palmolive, now represented by Bates, which competes with Procter & Gamble, a Saatchi client.
Bates also represents the Anacin brand of American Home Products Corp., while Saatchi’s client list includes Johnson & Johnson’s Tylenol.
Crane said he expects the price to be between $320 million and $350 million. He said the agency’s primary attraction is probably its worldwide chain of offices, but he added that it is also considered a well-run firm.
Robert Jacoby, Bates’ chairman, holds some 40% of the firm’s stock and is known to be interested in selling his stake before he retires. He also considered taking the agency public, “but I imagine he decided this would be easier than dealing with regulatory headaches,” said Emma W. Hill, analyst with Wertheim & Co. in New York.
Negotiations between the two firms come a month after Doyle Dane Bernbach Group, BBDO International and Needham Harper Worldwide agreed to merge. That agency would immediately become second largest if the Saatchi-Bates alliance is consummated.
The analysts said the effect of the advertising merger wave on corporate America is relatively slight. Larger agencies don’t generally offer better rates than smaller ones, for example.
“It all just means that corporate America will have fewer choices in whom to hire and that some agency (shareholders) will get a lot richer,” Wertheim’s Hill said.
