The Not-So-Jolly Advertising Giants

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The fanfare on Madison Avenue was deafening last spring when the two largest advertising mergers in history were announced within two weeks of each other. The power of the newly created superagencies and the vast riches that changed hands in the transactions stunned the ad industry for weeks. The first jolt was the three-way agreement in April to merge the sixth largest U.S. agency, BBDO International, with Doyle Dane Bernbach Group (No. 12) and Needham Harper Worldwide (No. 16). Their combined annual billings of $5 billion made the new agency, now called Omnicom Group, the world's biggest -- for a moment anyway. The commotion reached another peak two weeks later, when Britain's acquisitive Saatchi & Saatchi agreed to buy Ted Bates Worldwide, the third ranking U.S. agency, to create yet another world's largest ad group, this time with billings of $7.5 billion.

During all the hubbub, one influential group of bystanders seemed ominously quiet. They were the clients: the food companies and soapmakers that had grown accustomed to undivided attention from the ad agencies. Now that the merger mania is over, many clients are passing loud and painful judgment on the results. Their verdict so far: bigger is not necessarily better. An unprecedented parade of coveted clients has quit the two supergroups for smaller agencies. One such advertiser is RJR Nabisco, which took away $32 million in accounts (example: Fleischmann's margarine) from Omnicom and $96 million from Saatchi & Saatchi/Ted Bates. Declared RJR Nabisco Chairman J. Tylee Wilson, speaking at an advertising convention two weeks ago in Virginia: "The wave of mergers has benefited the shareholders and managements of the agencies, but I'm the client. I'm selfish. Show me how the mergers will improve service."

All told, Omnicom has lost more than $100 million in billings from the flight of customers, which include Sears, IBM and Pillsbury. The damages at Saatchi & Saatchi/Ted Bates have totaled more than $300 million; among the clients who canceled accounts were Colgate-Palmolive, Procter & Gamble and Warner-Lambert. While both agencies claim that they can absorb those losses without severe stress, the exodus of blue-chip clients has quickly soured Madison Avenue's merger mood.

A messy personnel struggle in September at the top of Ted Bates aggravated the feeling among some advertisers that power hunger or greed might be the true motivating force behind the mergers. Chairman Robert Jacoby, even after taking home an estimated $100 million of the $450 million merger price, proved unwilling to give up authority to his new bosses, Admen Charles and Maurice Saatchi.

Jacoby brought the conflict to a boil when he abruptly pushed aside a potential successor, Donald Zuckert, president of Ted Bates Advertising/New York. At the same time, Jacoby elevated two of his favorites without getting any nod from the Saatchis. The brothers retaliated by dumping Jacoby from the top job and installing Zuckert. The combative Jacoby heightened the melodrama, whether intentionally or not, by removing his portrait from a prominent wall at the agency and by accusing the Saatchis of breaking his five-year contract. "I don't know what happened. They hadn't told me they were going to do this," Jacoby says now.