Filed by The Interpublic Group of Companies,
Inc. Pursuant to Rule 425 under the Securities
Act of 1933 deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: True North Communications Inc.
Commission File No. 1-5029
CAUTIONARY STATEMENT
This document contains forward-looking statements. Statements that are not
historical fact, including statements about Interpublic's beliefs and
expectations constitute forward-looking statements. These statements are based
on current plans, estimates and projections, and therefore undue reliance should
not be placed on them. Forward-looking statements speak only as of the date they
are made, and Interpublic undertakes no obligation to update publicly any of
them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. Interpublic
cautions that a number of important factors could cause actual results to differ
materially from those contained in any forward-looking statement. Such factors
include, but are not limited to, those associated with the effect of national
and regional economic conditions, the ability of Interpublic to attract new
clients and retain existing clients, the financial success of the clients of
Interpublic, and developments from changes in the regulatory and legal
environment for advertising companies around the world, and the successful
completion and integration of acquisitions which complement and expand
Interpublic's business capabilities.
Another important factor is Interpublic's acquisition strategy. One of
Interpublic's business strategies is to acquire businesses that complement and
expand its current business capabilities. Accordingly, Interpublic is usually
engaged in evaluating potential acquisition candidates. Interpublic is currently
engaged in a number of preliminary discussions that may result in one or more
substantial acquisitions. These acquisition opportunities require
confidentiality and from time to time give rise to bidding scenarios that
require quick responses by Interpublic. Although there is uncertainty that any
of these discussions will result in definitive agreements or the completion of
any transactions, the announcement of any such transaction may lead to increased
volatility in the trading price of the shares of Interpublic.
Moreover, the success of recent or contemplated future acquisitions will depend
on the effective integration of newly-acquired businesses into Interpublic's
current activities. Important factors for integration include realization of
anticipated synergies and the ability to retain new personnel and clients.
Investors should evaluate any statements in light of these important factors.
The Interpublic Group of Companies, Inc. and True North Communications Inc. will
be filing a proxy statement/prospectus and other relevant documents concerning
the proposed transaction with the Securities and Exchange Commission. INVESTORS
AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS WHEN IT
BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ON THE PROPOSED TRANSACTION. Investors
and security holders will be able to obtain the document free of charge at the
SEC's website (www.sec.gov/EDGAR), or at the SEC's public reference room located
at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at
1-800-SEC-0330 for further information about the public reference room. In
addition, documents filed with the SEC by Interpublic and True North may be
obtained free of charge by contacting The Interpublic Group of Companies, Inc.,
1271 Avenue of the Americas, New York, NY, 10020, Attn: Investor Relations (tel:
212-399-8057), or True North Communications Inc. at 101 East Erie Street,
Chicago, IL, 60611, Attn: Corporate Communications (tel: 312-425-6500).
INVESTORS SHOULD READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN IT BECOMES
AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISION. True North and
certain other persons referred to below may be deemed to be participants in the
solicitation of proxies of True North's stockholders to approve and adopt the
merger agreement with Interpublic. The participants in this solicitation may
include the directors and executive officers of True North, who may have an
interest in the transaction as a result of holding shares or options of True
North. A detailed list of the names and interests of True North's directors and
executive officers, and of their ownership interests in True North, is contained
in True North's proxy statement for its 2000 Annual Meeting, which may be
obtained without charge at the SEC's website (www.sec.gov).
THE FOLLOWING IS THE TRANSCRIPT OF A TELECONFERENCE CALL HELD ON MARCH 19, 2001
AND PLACED ON THE INTERPUBLIC GROUP OF COMPANIES, INC.'S WEBSITE ON MARCH 20,
2001
Teleconference transcript 20 March 2001 The Interpublic Group of Companies, Inc.
[Logo]
McCANN ERICKSON, INC.
Host: Sean Orr
March 19, 2001/10:00 a.m. CST
Page 1
McCANN ERICKSON, INC.
March 19, 2001
10:00 a.m. CST
Moderator Ladies and gentlemen, thank you for standing by. Welcome to
the Interpublic True North Merger announcement call. At this
time, all participants are in a listen-only mode. Later, we
will conduct a question and answer session. As a reminder,
this conference is being recorded.
I would now like to turn the conference over to Senior Vice
President of Investor Relations, Ms. Susan Watson. Please go
ahead.
S. Watson Thank you, operator. Good morning, everyone, and thank you
for joining us. We're delighted you could be with us to hear
some very exciting news about Interpublic and True North
Communications. A few hours ago, we announced the
transaction that will unite our companies to create the
world's largest marketing communications company. For
purposes of this call, we will assume that you have all read
the release. The release is available on our Web site,
www.interpublic.com. At the Web site, you'll also find a
slide deck giving lots of detail about both companies and
the transaction.
Today's call is being recorded for future access. You can
access the replay on our Web site or by dialing 800-475-6701
in the US, or 320-365-3844 internationally. The telephone
replay will begin at 3:00 p.m. Eastern Time today and will
be available for 24 hours. It will be available indefinitely
at our Web site.
Rather than read the cautionary statement, I will refer you
to the press release, which is also available on major news
services or to our filings at the SEC to review the Safe
Harbor language with regard to forward-looking statements.
With me this morning to discuss today's news are John
Dooner, Chairman and CEO of Interpublic; Sean Orr, Chief
Financial Officer of Interpublic; David Bell, Chairman and
CEO of True North Communications; Brendan Ryan, CEO of FCB
Worldwide; also with us this morning is Kevin Smith, the CFO
of True North to help us with questions. Now it's my
pleasure to introduce John Dooner.
J. Dooner Thanks, Susan. Sean will take us through the details of the
transaction. That'll be followed by some comments by David
and myself and Brendan.
I just want to start and say from the outset that we are
extraordinarily delighted. True North has great clients,
they have great people, and I think as I spoke to many of
you who are on this call, we're able to deliver against a
promise of delivering an accretive deal. So let me have Sean
take us through the details of the transaction and then
we'll hear a little bit from David and Brendan and myself,
and we'll certainly open up to any questions and comments
that you would have.
S. Orr Thank you, John. Good morning, everybody. I'd just like to
walk through the core elements of the transaction to begin
with. First of all, the transaction structure is a stock per
stock merger of Interpublic and True North. The transaction
involves a fixed exchange ratio of 1.14 shares of
Interpublic for each share of True North. And I will repeat
that because I understand that at least one news service had
it transpositioned in the number that it put out, and that
is the fixed exchange ratio is 1.14 shares of Interpublic
for each share of True North, and there will be no collar.
That ratio will remain fixed.
Reusing values from close of business last Friday that
equated to $40.24 per True North share based upon our
closing price of $35.30. Now those numbers will continue to
float between now and the time of closing. But again, using
those values, we're talking about a transaction of
approximately $2.1 billion in equity value. The pro forma
ownership will be 84.5% from Interpublic shareholders and
15.5% for True North shareholders. The expected accounting
treatment will be a pooling of interests transaction and it
is expected to be a tax-free reorganization.
We won't go through all of the elements of deal protection,
but there is a break up fee of $80 million that has been
agreed to. Now the intention is to have both David Bell and
Brendan Ryan nominated for election to Interpublic's board
of directors and we expect that the transaction will close
sometime during the summer.
In terms of the financial impact of the transaction, I'll
walk through some highlights. On a pro forma combined basis,
2000 net revenues would be $7.2 billion, and pro forma
operating income would be more than $1 billion. This
transaction will be accretive to GAAP earnings in 2001, 2002
and going forward. And in making that statement, we have
taken into account True North's change in accounting for
goodwill amortization and the new accelerated time tables
they're using for their goodwill amortization, and we've
also taken into account some of the recent accounting
decisions taken up in the fourth quarter by Modem Media, as
well.
In modeling this transaction, we anticipate annual cost
savings in excess of $25 million from eliminating obvious
corporate overhead redundancies in putting two holding
companies' structures together. This estimate of $25 million
or more only takes into account these obvious structural
overhead redundancies. Some might call them low hanging
fruit, and do not include any other operational efficiencies
or improvements that we think we may fairly anticipate as we
go forward. These synergies also do not take into account
some of the other new growth opportunities that will arise
from putting the two organizations together and I'm sure
that David and John have more to say about that in a moment.
On a pro forma basis, our reported revenue for 2001 will
show double-digit revenue growth, and that is including the
Chrysler revenue numbers in both 2000 and 2001. So in other
words, notwithstanding the loss of Chrysler revenue, the
combined organizations will report double-digit revenue
growth in 2001. Without Chrysler, which will not be the way
the companies report, but was the way that we at Interpublic
had to look at the economics of the transaction. If you take
Chrysler out of both years, the revenue growth would be in
the 15% range.
Two thousand one pro forma EPS will be within the previously
announced $1.65 to $1.70 range. We do expect accretion in
the current year. We don't think it's going to be
significant enough to cause us to change our earnings
guidance, as the synergies that we described will not be in
place for the full year. As we look forward, the combined
businesses we believe will continue to be able to deliver
the double-digit top line growth and double-digit EPS growth
going forward. That has been the ongoing long-term
Interpublic objective.
I would like to just spend a moment commenting on Modem
Media. It is an investment in another public company that
True North is carrying. True North owns 44.6% of the Modem
Media stock. But in the grand scheme of things, that
investment and Modem Media's contribution to the overall
economics of either True North or Interpublic is a small
piece of the puzzle. We have been impressed so far with our
exposure to Modem Media management and we applaud their
current emphasis on cash management and cash flow
performance, and their focus on managing the company to a
cash profit positive position.
We applaud what they did at the end of the year in terms of
dealing with their goodwill issues, which take a big
goodwill burden out of their P&L picture going forward,
which was their main obstacle to achieving profitability.
And even though we are encouraged by what we hear from
management in terms of its current situation and objectives,
we are not assuming any profit contribution from Modem Media
in any of our modeling, nor are we obligated to provide any
ongoing cash funding to Modem Media. And we look forward as
a company to getting to know their management team better as
we go forward.
One last comment is on the potential for client conflict.
Number one, the most important point to be made is that the
primary agency asset, Foote, Cone & Belding, will continue
to operate as a separate, stand-alone agency. So therefore,
by keeping it as a separate, stand-alone identity, we will
not be creating any new conflict from that perspective.
In our discussions with clients about the issue of conflict,
we are continuing to hear growing tolerance for the whole
issue of conflict as the industry consolidates. But
notwithstanding the above, we feel that the models that we
have built provide us ample allowance for revenue loss from
client conflict before we have any risk of accounting
dilution. So with that summary of the financial impact of
the transaction, I'll turn it back over to John.
J. Dooner Sean, thanks. David would like to say a couple of comments
and I'm sure they're going to be very positive. But again,
one of the things as you put a company together, you look to
find a culture that can really work and fight the fight. And
I have to tell you that we've had a few months to get to
know True North and their key people better, and that just
grew over time in terms of our respect and our sensitivity
towards them really being an incredible fit with ourselves.
I go back with David quite a few years in the industry as
competitors, but also as two people that try to contribute
to the overall field, as well. Later on, I'll have Brendan
give you some understanding of how long he and I go back,
but let me pass it on to David now to give you some of his
thoughts.
D. Bell Thanks, John. You're right; we're going to say exciting
things because our management team is really pumped. As you
know, after our third quarter conference call, we said that
True North would consider a strategic combination if we were
sure that it would benefit our clients, our people and our
shareholders. And our planned coming together with
Interpublic today does just that.
This combination is the logical next step for us to build on
and accelerate the building of our agency brands. We believe
that this coming together will also accelerate the success
that we've had in the last two years in strengthening our
financial fundamentals, both in terms of organic growth and
operating margin. It will be our focus to accomplish that by
helping our clients take advantage of an enormously expanded
array of tools that Interpublic has to help our clients
drive their businesses.
Some of you know that at True North we've had a major
collaboration effort to extend our service to our clients
and it has worked well for us, and this coming together
simply turbo-charges that effort. And frankly, we believe
that there are number of important new business
opportunities that have chosen to wait to see what the next
step for True North will be, and we believe this coming
together will open doors for True North agencies.
From our standpoint, what will make this merger work
extraordinarily well are two fundamental things. The first
is a like-minded management who share an absolutely common
vision for the future of our business and for the future of
the Interpublic Group, and who believe strongly in the best
ways to provide integrated solutions for the clients. This
is also, as John mentioned, a management group that will
operate together in an open, candid and honest environment
to make things happen for our clients and for our
shareholders.
Secondly, this will work because the True North management
team and its people are committed to making it work.
Committed to being part of the future of Interpublic and to
do the transition and the integration with skill and
success. We've done successful mergers and integration
before, we fully intend to do it very successfully with
Interpublic, and that can only run down to the benefit of
the shareholders.
J. Dooner Thanks, David. Brendan, maybe you can share a couple of
comments from the perspective of Foote Cone and what you can
expect out of this new relationship.
B. Ryan Terrific. I sent a memo out to our 8,000 employees this
morning and I said that this is terrific for FCB as an
agency, terrific for our clients, and terrific for all of
our people, and I really mean it. It's just an outstanding
event for us.
A couple of things; one, now we become part of the number
one company in our industry. Number one is good; big is
good. Number two, it dramatically improves our media
offering to our clients almost instantly. Number three, it
gives us access to an excellent range of services that's
broadened beyond what we had at True North, but enables us
to continue collaboration of philosophy. There are giant
global clients housed within Interpublic, which in a world
of consolidation on the client's side as well, it's a good
thing to be connected with a company, which is connected to
them. Then, lastly, it gives us a better, stronger currency
in terms of the stock of Interpublic to reward our people
with and to use in making further acquisitions as we build
out FCB.
You put all that together, it's absolutely a can't miss
deal. But then there's the most important piece of all,
which to me are people. There are a lot of people in this
business and frankly, I don't want to work for all of them.
I really want to work here. John and I, as he was alluding,
go way back. Actually, when I was an annoying little product
manager at General Foods as a client, I had an even more
annoying, even more junior media guy at Gray Advertising
working on our business, named John Dooner. So we go back.
As I said in my memo to everybody at FCB, 30 years ago, no
we didn't meet in kindergarten but we actually met in
business, and we share a philosophy about this business, we
share an attitude, and it is a fact that things begin at the
top and it permeates the entire organization. So with John
as a prototype of the people at Interpublic, and I know an
awful lot of them over the years, it's just a tremendous fit
with the guys from True North, the people from FCB. It
couldn't be a better day for us. It really couldn't.
J. Dooner Thanks, Brendan. I think it'd be appropriate now if we would
open it up to the questions.
Moderator Ladies and gentlemen, our first question comes from the line
of David McMurray at Credit Suisse First Boston. Please go
ahead.
D. McMurray Thanks. Hi, I had a couple of questions. Sean, you touched
briefly on the client conflict issue. I was wondering if you
could tell us roughly how many clients have been contacted
so far and maybe talk about a couple of particulars, such as
Coke with Tropicana, S.C. Johnson, and Unilever, etc.?
S. Orr David, I'm a finance guy. These guys don't let me talk to
clients. I'm going to let John answer that question.
J. Dooner David, how are you? This is John Dooner. We have talked to
the major clients and understandably, you're going to get a
wait and see attitude. I did get a positive response from
Coca-Cola and their recognition that the world has changed
and that, indeed, as consolidation continues to go that more
tolerance is something that could be expected. With that
said, as I think you heard Sean say, we will monitor that
over time. We have taken into account to some extent in the
financial models, but I'm actually encouraged to be very
honest as to the response I'm getting at this point. Let me
ask David to respond to some of the calls he's made to his
clients.
D. Bell Yes, David, we're sorry we're not at your conference. I
think you probably know the reason why. What we would like
to say about this is that as we have considered this and as
Sean indicated, the fact that FCB remains a strong
stand-alone agency and the fact that the Interpublic Group
literally pioneered the holding company structure and how to
maintain the walls of confidentiality, we think bodes very
well because that's exactly where we're moving.
I have called S.C. Johnson, whose primary concern as you
would hope is their team, their agency, their relationship
with us, how it moves forward, and frankly, how comfortable
we are, and we have assured them that we're extraordinarily
comfortable. Also, calls were made to MaxiLee, Unilever,
Quaker, and Chase. So we've done a good job with that and
the response at this point in time is understandably you
would expect them to wait and see, but I have to say, and
I've seen this in recent years, there is a movement towards
tolerance for the very obvious reasons that I mentioned. And
also many of these clients recognize that companies like
Interpublic are able to provide a significant range of
marketing competencies that they really do want to have as
arrows in their quiver.
D. Bell David, only one other thing. This is David Bell again. I
think it's important to indicate that we are merging holding
companies, and in reality holding companies don't have
clients. The brands within the holding companies do. This is
not like an FCB/Bozell merger or Lowe/Lintus merger.
D. McCarthy Great. Thanks. And to that point, just on the operation of
the True North companies going forward, you were fairly
clear on FCB. I just wanted to clarify that BSMG and
Marketing Drive and FCBI, all those will remain tightly
linked to the FCB Agency?
J. Dooner The FCB will be developing its platform as an independent
network, probably accelerating a group, if you will, entity
with integrated marketing competence around the world;
however, at this time, we're looking at each one of these
entities separately and recognize that they've grown
separately. So at this point, we're not prepared to talk
about any further integration than exists today.
D. McMurray Great. Thanks. And just a final question on the management
of True North coming over, could you tell me about how far
down the list you are trying to lock up the management and
how you're going about doing that?
J. Dooner Well, first off, I have to make sure Brendan buys that media
plan I tried to sell him 30 years ago and then hopefully
we'll get him locked up. I had a very rare opportunity to
talk to the top management group yesterday. And I have to
tell you that it starts there. At that meeting, we shared
our points of view about life and our philosophy about the
business, and cultural attitudes we have. It was a lot of
like-mindedness that bode very well. Obviously, going
forward and working with individuals, our human resource
people will be very hard at work ensuring that the key
people that we want to go forward are going to be going
forward.
D. Bell I think there's a common air at True North management among
our agency heads and our group that this is not a kind of
transaction to exit, that this is a transaction that can
take us to the next step in the building of our businesses
and servicing our clients. And that's the permeating
attitude, which we believe will bode very well for the
future.
J. Dooner Yes. As a matter of fact, and David, I guess we're spending
more time with you than most, but one of the things that was
clear in this transaction I think, that as you look at it
financially, you'll realize that both bodies put their hats
in the same ring. Realizing that if they work collectively,
the benefits of building the Interpublic share will be
shared by everyone. So you really see that attitude coming
through loud and clear, and that's something you want to
see.
D. McMurray Great. Thanks very much.
Moderator The next question comes from the line of Laura Fine at
Merrill Lynch. Ms. Fine, your line is open.
L. Fine Great. Thank you. A couple of questions. Just following up
on Dave's question, specifically, could you discuss any
potential management contracts you might have with Brendan
and David Bell and maybe a couple of other key people?
Whether you've been able to get them, specifically, to
commit to a certain amount of time? And then I guess my big
question in all this is trying to understand the timing from
both companies' point of view. It feels like True North is
selling at the moment of highest uncertainty at a price that
seems fairly low. And I guess from Interpublic's
perspective, it seems like the price is very attractive. But
at a time when investors are still concerned about the
resources you need to devote to...and do you have the
ability to then devote resources to True North as well? So
if you could comment on the timing, management contracts,
and then I'll have another follow up question.
J. Dooner We're in discussions with David and Brendan, and maybe I
should have Brendan and David talk with regards to this.
D. Bell Laura, we want you to keep your True North jacket as a
historical momento.
There will be, and basically are no contract issues with me.
I've signed on to be an Interpublic employee and to bust our
pick to make this work. It's not going to be an issue,
period.
B. Ryan John, I'm the same. I want to be here. It's a good deal, and
in talking to our senior guys around the world this morning
and today, there is tremendous enthusiasm for this and knock
on wood, but I really don't anticipate any defections. I
think, in fact, this is going to enable us to better keep
our people.
J. Dooner I don't think you should assume that there will be major
defections...
B. Ryan No, there won't.
J. Dooner ...there really won't.
L. Fine No, I wasn't assuming it. I'm actually very comfortable with
that. I was just curious if there was anything done to make
sure that people stayed.
D. Bell Yes. As a matter of fact, Interpublic has been very
forthright and open, and their human resource people have
addressed any concerns that we've had, both conceptually and
in specificity.
B. Ryan I'm particularly glad to hear you raise this issue, Laura,
and I'm glad John's listening. Very nice, thank you.
J. Dooner I particularly want to thank you Laura, and you will see
that immediate plan as well.
The other question you asked is a reasonable question, and
that is resources of the transition group and relative to
other needs we need to do in terms of giving attention. I
think what you're seeing in the transition team, or if you
step back and see the depth in management that we're gaining
from this merger, it offers Interpublic greater strength
with that depth of management. I think that allows us, if
you will, to attack any issues stronger than probably ever
before. In the specific case of the True North acquisition,
David, working with two of our key executives here at
Interpublic, Barry Linsky and Bruce Nelson, as well as with
Kevin Smith in the financial area with some guidance from
Sean and myself; that's a pretty powerful transition team
and these are people that actually do things.
As it relates to making sure that my foot is where it needs
to be, and I think we have an understanding of where that
is, that foot is not moving very far from that. And if
anything, I would hope to show, and we've demonstrated as a
company of some continued success in those companies as
well. So I think with this, we're blessed with the greater
depth in management, allowing us to really aggressively, and
not only handle the integration, but also address some of
our broader, long-term management needs.
L. Fine Okay. Last question, on the account side that Sean referred
to where you have certainly taken into account the potential
for client losses, I am wondering how you would characterize
AT&T Wireless and Quaker, given Pepsi's acquisition there,
if you have specifically gone through account by account.
And you didn't mention Compaq when you talked about clients
that you had called and I'm wondering if you had spoken to
them, as well.
J. Dooner A little bit, yes. The fact is, Laura, and this is a
remarkable combination when you combine the scale of
businesses that you have. I mean you really have to dig
pretty hard to come up with serious conflicts or even
potential impressions of conflicts. And I don't think we're
going to have a problem with this; I really don't. I mean
Compaq, there's no issue. I mean there's not.
D. Bell Well, Compaq you have a natural relationship between Foote,
Cone & Belding and Draft. So I would imagine that Compaq
would be very excited about that. And I know that Brendan is
very anxious to work with Howard Lisk and I look forward to
seeing that actually...
B. Ryan I might actually try to steal his business. But...
D. Bell ...that'll be a little...As it relates to AT&T, Laura, I
think that the AT&T Wireless, they're going through changes
themselves. And you know, we have a business out there today
that there's some economic issues, especially in the
technology and the telecommunication area. And in that
particular issue with the wireless, they're going to be
spinned off and it's logical to me that they would look to
make sure that they have the resources they feel they
require going forward. So I don't really think that that has
any direct implication of an acquisition, or if you will,
the merger at all.
J. Dooner On the flip slide, Laura, if you take a look at expanded
possibilities. If we take a look at Interpublic service of
Verizon and True North's service of Verizon, we both expand
our service by coming together.
L. Fine Great. Thank you very much.
Moderator The next question comes from the line of Vivian Quan at
Deutsche Bank. Please go ahead.
V. Quan Yes, hi. My first question is for David. The press release
did talk about comfort with first quarter estimates for True
North. Could you comment on your comfort for the full year?
And then secondly, as Vice Chairman of Interpublic, is your
primary focus still going to be the True North operations,
or will you be taking on an expanded role?
D. Bell Well, thanks for addressing it to me. I'm going to split it
up and suggest that Kevin talk about our comfort with full
year and let John talk about roles beyond the integration of
True North.
K. Smith Okay, Vivian, we will remain very comfortable with the
estimates, the consensus estimates for the year, obviously
adjusted for the increase in amortization expense.
V. Quan Okay.
J. Dooner In terms of David's role forward, I think that one of the
things that you have here, not necessarily the goal but a
byproduct of our coming together, is the largest marketing
communication company in the world. I have to assure you, as
we talked a little earlier to Laura, the need for management
depth to really address needs going forward, whether they be
clients or operational, is not a short list. And I think
that David, because of his experience and history, will be
able to provide enormous help to a myriad of things within
Interpublic and obviously, his first thing will have to be,
as I mentioned earlier, the integration of True North. But
my suspicion is that he'll be doing multitasking, as a lot
of us do these days, and he'll be quite busy.
V. Quan Okay. Thanks.
Moderator The next question comes from the line of Richard Tompkins of
Financial Times. Please go ahead.
R. Tompkins Hi, good morning.
J. Dooner Hi, Richard.
R. Tompkins This is open to journalists as well as analysts, isn't it?
J. Dooner Sorry?
R. Tompkins This call, the questions are open to journalists as well as
analysts, are they?
S. Watson Generally, we discourage journalists from asking questions
on this call. I'll be happy to cover you offline.
R. Tompkins Okay. Sorry, what are you saying? Can I go ahead with the
question?
B. Ryan I believe she said she'll talk to you offline, sir.
R. Tompkins My question is it's no secret that True North was in talks
with Havis Advertising about an offer that I believe was
worth about $45.00 a share. This is a question obviously for
David Bell. So why did you accept a lower offer of around
$40.00 from IPG in preference to what was on the table from
Havis?
D. Bell We won't comment on any conversations with any other
potential acquirers or any other potential proposals. We
have made this decision because we believe it's the right
decision for our clients and our shareholders, and that's
all we'll comment on regarding any other proposals.
Moderator Our next question comes from the line of Troy Masten at
William Blaire. Please go ahead.
T. Masten Good morning and congratulations.
J. Dooner Thank you.
T. Masten First question involves accounting treatment more than
anything. I guess I'm curious as to the thought process that
went into how to account for this when to complete the deal
I guess in light of changes that might be coming down the
pipeline for accounting treatment, purchase versus pooling
and changes that might happen this summer? A second question
I will follow up with in a minute.
S. Orr Well, Troy, this is Sean Orr speaking. The first thing that
I'd say is that it's not certain yet whether the accounting
rules are going to change this summer. In fact, our recent
intelligence is that that whole process of rule changing
could take longer than it has been anticipated. So the
assumption that pooling rules go away in the middle of the
year is an unclear assumption at this point.
I think the more important issue is in choosing a stock per
stock transaction. Given the size of the deal, we thought it
was the most logical way to structure and finance a deal of
this size, as has always been our historical practice.
T. Masten Okay. In follow up, are there any expected write-offs,
either cash or noncash as a result?
S. Orr Well, right away, when we talk about eliminating redundant
positions, you are going to have costs associated with
treating the affected people fairly. You also have
transaction costs because both companies used professional
investment banking advisors and law firms and accountants in
getting the transaction to this point and will be continuing
to use that advice and counsel in closing the transaction.
So there will be costs associated with the deal itself. So
yes, those costs of eliminating overhead and the costs of
completing the transaction will be accounted for as a
one-time charge when they're incurred.
T. Masten No other expected reorganization charges right now?
S. Orr Well, as we look further into the company and if we do have
to incur some costs to accomplish the merger in the right
way, they will be taken into account when we do this
accounting.
T. Masten Okay. Thank you.
Moderator The next question comes from the line of William Berg with
Salomon/ Smith Barney. Mr. Berg, your line is open.
W. Berg Yes, thanks a lot. I was just wondering if you could give us
any particulars on the structure of the break up fee. And
also, secondly, you've discussed the issue of kind of
locking up employees. I am curious if there's any provision
for locking up employee stock with True North employees
owning about 20% of the stock. Thank you.
J. Dooner Bill, I'm not sure how specific we want to be. We have
disclosed an $80 million number for the break up fee. In
terms of other mechanisms to ensure that the transaction is
accomplished, I think that the two companies have agreed to
a good set of provisions that are standard in an arrangement
like this to assure that our mutual interests in closing a
transaction does, in fact, happen.
W. Berg And just to follow up on the stock lock-up, is there any
provision in place?
D. Bell I think we'll have to get back to..., oh sure, that's right,
there is no lock-up. Sorry.
W. Berg Thank you.
J. Dooner Bill, the standard restrictions on affiliates will govern
because of the pooling transaction.
W. Berg Thank you, and just as a follow up, can you give us any
sense of what kind of order of magnitude of revenue
synergies you're assuming could take place with this entity
coming together?
J. Dooner Well Bill, as I said in the opening remarks, in terms of
modeling out the accounting implications of the transaction,
we haven't assumed any number for revenue synergies. And our
economics and our assertions around accretion do not depend
on any number related to revenue synergies. We do think, for
some of the qualitative reasons that John, David, and
Brendan have alluded to, that a number of the True North
agencies will be in a much stronger, competitive position in
terms of pursuing new clients, new people, and acquisitions
as a result of the combination with Interpublic. But the
benefits of that stronger, competitive position have not
been modeled into our economics, or are not a dependency to
making the numbers work.
W. Berg And Sean, when you indicated that on the lock-up standard
restrictions on affiliates and a pooling hold...
S. Orr Correct.
W. Berg ...I was just wondering if you could specify what that is
for the benefit of those who are unfamiliar with all the
details and nuances of that.
S. Watson Bill, let's take that...
S. Orr Bill, you know, the reason why I'm hesitating about this is
I'd rather do that offline. We start to get into some real
esoteric, technical requirements then. I'd be happy to spend
as much time as we need to offline on that.
W. Berg Okay. Fair enough. Thank you.
Moderator The next question comes from the line of Karen Ficker at ING
Baring. Please go ahead.
K. Ficker Hi. Actually most of my questions have been asked. Some of
them not answered, but I do have one remaining question. I
wanted to find out, to big picture strategy, I look at the
addition of True North and I see your marketing services as
a percentage of revenue stays pretty much constant, but your
exposure in North America goes up dramatically and John and
David, maybe both of you want to comment on where you see
that and where you'd like that ideally to be over the next
few years. And are there possibly some brands that will be
immediately absorbed within IPG's network that'll change
that slightly? Or maybe even domestic assets that might be
sold back to management or divested otherwise?
J. Dooner A couple things, there's a lot in which you ask, Karen. From
a strategic point of view, you're absolutely right. The mix
does not really materially change the trends of advertising
and non-advertising. Obviously, going forward, you have
significantly more growth in the non-advertising area, so it
reasonable to expect and logical for us to follow a strategy
to continue to build those areas. Recognize too that True
North actually does have some strength in those areas that
we probably could help build, both in taking global
footprints and competence. So if you will, that percentage
also offers an opportunity in and of itself. So no question,
we'll continue to look to build, if you will, in those
areas.
Also, I think it's important that the industry understands
that many times in the marketing services area, that
billings and that revenue growth very often is coming from
the relationship of the agency. So let's not minimize the
importance of having strong, deep client relationships at
the agency base. We seem to have gotten away from that as we
create these financial models, but it's very, very vital.
The most important thing to look for, I believe, is the
length and quality of a relationship you have with clients
within the agencies and recognizing the notion that you can
and should be providing multiple tools to them, and that
creates a migration that builds those other areas, as well.
You asked whether or not we would take a look at the
portfolio and see whether we would do alignments or
integrations and so forth. And the answer, of course, would
be yes; we would evaluate that. We would look at all things
to ensure that all of the elements that are coming to bear
have the greatest opportunity to grow in their particular
area. It's very much a part of the same kind of growth
strategy that we have with Interpublic, and that is
obviously to get the ..., consolidate where it's appropriate
to ensure you have the ... to get the growth where it seems
most appropriate, and obviously the third part being
expanding the charter so both the footprint and the
competence is there.
So sure, we would evaluate that. Going today, we're not
prepared to discuss any of the specifics of that point, but
obviously that's something that we would be working together
to determine.
K. Ficker Okay. Great. Thank you.
Moderator The next question comes from the line of Alexia Quadroni at
Bear Stearns. Please go ahead.
A. Quadroni Hi, good morning. Just a few questions. Sean, I think you
had commented earlier that you don't expect to see any
profits from Modem in your projections for this year. But
given how diluted it was to True North's earnings in the
fourth quarter and given that True North had sort of
anticipated Modem would no longer be on their P&L by the end
of second quarter to make their full year numbers, are you
assuming any losses from Modem in your full year number?
S. Orr As we understand the Modem numbers, one of the reasons why
they were recording losses in the past is because of a very
heavy goodwill amortization burden in their numbers, in
terms of their ongoing P&L. In the fourth quarter, there
were significant impairment charges that further depressed
their earnings. Those accounting factors are behind them
going forward, which changes their earnings picture quite to
the positive going forward. So we don't feel you have the
risk of the same kind of dramatic P&L impact coming out of
Modem going forward as you saw in '00 for the full year or
for the fourth quarter. But I'll let Kevin add to that.
K. Smith Sure. Alexia, we would expect them to be profitable after
all the write-offs that they've taken with the elimination
of the goodwill charges, as well as the severance that
they've taken and the shutdown in Japan, which was a losing
operation for them. We think they should be profitable in
'01.
A. Quadroni And it will be profitable from the get-go? At least in the
first half of the year?
K. Smith Well, they announced a first quarter charge of $3 million to
shut down Japan and some other severances. So setting that
aside, I think they'll clearly be profitable.
A. Quadroni Okay. And then, just a follow up, Sean, on your comments
earlier on your cost savings, since you qualified a lot of
them as low hanging fruit, would you assume that will see
maybe half of that $25 million shortly after the closing? Or
at least in the second half of this year?
S. Orr Well, it really depends upon, first of all, the timing of
the closing, Alexia. Then one of the things that we'll be
working closely with Dave and Kevin on is the phasing of
these synergies. We've had some great discussions in very
finite detail on a person-by-person basis about what the
opportunities are. But in terms of how quickly operational
lives...something we still have to work out between the two
companies. But I think you have right to start expecting to
see a meaningful portion of the savings shortly after the
closing. As a result, though, you'll only have a part year
effect coming through in the '01 numbers.
A. Quadroni Okay. And just a last question, any commentary or any feel
for what Publicis is planning on doing with their stake in
True North or what they think of the deal?
D. Bell We have no comment. We have tried to make a call to
Publicis. In fact, we think that the CFO may be at the First
Boston Credit Suisse conference, and we have not connected
today, but we have tried to make a call.
A. Quadroni Okay. Thank you.
Moderator The next question comes from the line of Michael Russell at
Morgan Stanley. Please go ahead.
M. Russell Thank you very much. I guess, gentlemen, I'm worried about
Mr. Hammersley, who's moving from London to the US to head
up Lowe Lintus US. Does he need to go back? Can you tell us
how the relationship between Bozell and Lowe Lintus might
actually work as you think about this going forward?
D. Bell Well, I'm not sure where that question is coming from,
unless there's something you heard this morning. Paul is
coming to Lowe Lintus. Those plans remain and actually,
we're thrilled that he's doing it. I think you may know, or
I'd like to have you know, that he's done a fantastic job in
London in one year. In its infant year, it became agency of
the year with significant performance and new business and
with existing clients and turning around the relationship
with Unilever. So we look for great things from Paul and
there is no correlation or relationship to Bozell and Lowe
Lintus. As I think I had mentioned earlier, the importance
of keeping our focus on Lowe Lintus and its performance will
not change. So I'm not looking for any solution coming out
of a relationship with Bozell, period.
M. Russell So your intention right now is to keep them separate?
S. Orr Yes. Again, I was asked before and we have not determined
for sure what we'll do, as you would expect, is to ensure
with our growth strategy that all component parts are
evaluated relative to their opportunity to expand and
provide the services the clients need to get for their
growth, as well. But at this point in time, there's been no
direct discussion with regards to Bozell as it relates to
Lowe Lintus at all.
D. Bell Mike, this is David. As planned chairman of the transition
team, let me just tell you that any possible combinations in
the future will be looked at carefully by our management and
they'll be done with the same kind of care that you watched
us do our internal kinds of things. We did them where it
benefited clients and the employees and the brands that we
operate, and none of those have been determined. Clearly,
with the scope and breadth of opportunities we have, we have
an ability to enhance our brands going forward. But the
definitive nature of that would be very carefully
considered.
M. Russell Okay, then just one follow up. Brendan and David, one of the
things that you've done is kind of get yourself in a
situation to get another auto account. I'm wondering how
that might fit and what might be on your radar screen now.
B. Ryan Well, you sound like these guys. The ink isn't even dry yet
and you want me to have a new auto account. I think we bring
to the party some tremendous capabilities in that area, and
obviously that's one of the priorities. And working within
the Interpublic Group, that's an opportunity right there,
but then there are other opportunities, as well. We don't
have anything to say specifically right now other than
that's a great opportunity for us. We're a big, strong
company without one and would be even better with one.
D. Bell The best way to say it, Mike, is that our task force that is
operating aggressively in that area certainly will continue
to operate as aggressively in the new environment.
M. Russell Great. Thanks very much and congratulations.
Moderator We have a question from the line of Fred Fialco at Toray
Companies. Please go ahead.
D. Ebie Hey, John, it's Doug Ebie from Toray.
J. Dooner Hi, Doug. How are you?
D. Ebie Listen, I'm just curious... out three to five years, what
does this do to your growth rate? It just appears like this
might slow your growth rate somewhat. I mean do you foresee
this increasing it?
J. Dooner Well, yes. First off, I'm not sure what numbers or way
you're looking at, what kind of model you're looking at that
it would say it would slow the growth rate...
D. Ebie You know me better than that, John. I'm not looking at any
model. Oh, there you go.
J. Dooner No, I think ultimately, strategically, what you need to have
is the very best client base. You need to have a commitment
to give those clients the integrated solutions required to
have them build their business and expand their brands, and
you need to be able to do that on a global basis. What we
have here are the elements that it will be added to
Interpublic that is on a same, strategic course, and also
will be integrated to our growth strategy, whether it be our
emphasis on organic and margin growth or as we talked
earlier about the consolidation, integration and expansion.
So no, I think that putting all the component parts
together, that this will enhance our growth capability. And
I think you also heard from Brendan and David that they
believe that this will significantly enhance their
opportunity for growth in that it gives them more
ammunition, if you will, in terms of offerings to help
clients build their businesses. So...
D. Ebie I just ... what I was referring to is that clearly IPG has
grown a lot faster than True North has over the last 10
years. So what you're saying is that you're going to be able
help them grow faster within your organization?
J. Dooner I have to tell you this. My new thing about humility and I
won't tell you the whole story. But if you examine True
North's performance in the fourth quarter, and if they were
able to share with you some recent numbers they have, I
don't think you'd be saying that to me.
D. Ebie I'm not talking about the fourth quarter; I'm talking about
the last 10 years.
D. Bell This is David. Let me comment on that. I think we've tried
to be clear that we think that this merger can actually
enhance the growth of True North, and enhance it in several
arenas. We think this is the logical next step to accelerate
growth by having expanded service offerings for our strong
client base, by having a different kind of acquisition
currency, which frankly has hampered our top line revenue
growth in not being able to be as aggressive a consolidator
in our industry as we've liked. And secondly, we have some
opportunities with clients to expand them across platforms.
And those are the things that we think can take the True
North track record over two years and move it to the next
level and be part of Interpublic in that context.
J. Dooner Also Doug, don't minimize the momentum. Put the
Daimler-Chrysler aside. You're seeing significant momentum
in the last two years in this company from SCB and all the
other companies as well. So this company has got a lot of
vitality that will add to what David just mentioned.
D. Ebie John, I don't know if this is the forum, but could you
comment just on how is business right now?
J. Dooner It's probably not the forum. How's business...
D. Ebie Well, don't answer it then.
J. Dooner Yes, let me do offline with you, if I can with you on that.
I just completed a trip around the world to meet with our
key clients and top line I will give you, and then we should
spend some time offline, is that there's still optimism
coming from these global leaders in business about the
global marketing and global economic picture. There's no
question, we don't have an ostrich effect in the States with
the apparent slowdown here, but by and large, there still
remains positive feelings going forward.
D. Ebie Okay.
J. Dooner And I'll go into detail with you, Doug, offline if it's
okay.
D. Ebie Yes. Well, congratulations.
J. Dooner Thank you.
Moderator The next question comes from the line of Chris Hampton at
Bank of America. Your line is open.
C. Hampton A couple of quick questions. One, is there any further
clarification you can give us, and obviously you're
maintaining double-digit growth, estimates including
Chrysler. I'm wondering if you can narrow that down at all
as to what you might see. Is there any additional
clarification you can give us? If you can't give us on what
the amount or extent of one-time charges, particularly the
non-investment banking ones. The ones related to cash, one's
possibly related to severance or facility closures or any of
the other kind of typical charges we might see when there's
a transaction of this magnitude. What they might or when you
would disclose those.
Then, lastly, given your IPG's positive outlook at least
initially on Modem, and obviously you've been pretty active
in snapping up some of the smaller interactive shops as
evidenced by Holiday's recent purchase of Espen Interactive,
is there a possibility that Modem might fit in as an owned
entity rather than a partially owned entity? And if you
can't answer that question right now, how might you come to
that decision? Thanks.
S. Orr Let me try to take them in order. The numbers on Chrysler, I
think that our friends at True North have been fairly open
about their revenue numbers for the year 2000 were in the
$136 million range. It would be a revenue contribution in
the early trimester of '01 of about $13 million. What we're
saying is that, despite that very significant negative
comparison on a very, very major automotive account, True
North as an entity will be growing this year on the top
line. And when you put that True North performance together
with Interpublic, it's going to yield a reported
double-digit growth for 2001 for the combined entity.
Now, we also said earlier is if you backed out that Chrysler
noise, the combined entities will grow at a 15% rate year to
year on the top line.
In terms of one-time charges, I think one of the issues that
David's transition team will be focusing on is both the
phasing, the communication, and how people affected by the
restructuring will be dealt with. So it would be more
appropriate to have those issues resolved before we make an
announcement of what the numbers are. Particularly since, as
I said earlier, the focus primarily has been on the obvious
overhead redundancies right now, and there's still work to
be done on other opportunities within the combined
enterprise. So now isn't the right time to disclose a
number, even though I'd be happy offline, Chris, to have a
discussion with you on what you can do to make some educated
guesses on what we might do there. I think closer to the
time of the closing would be a more realistic time to expect
to have a discussion of what those numbers may be.
In terms of Modem Media, I think again, it's too early to
tell. In terms of the overall economics of this combination,
it's a small piece of the puzzle. But obviously, the fact
that Interpublic is stepping into True North's chair will be
significant, at least potentially, to Modem Media's
shareholders. But we need to get to know Modem's management
a lot better before we can really make responsible
statements along those lines.
C. Hampton Great. Thank you.
Moderator The next question comes from the line of David Liebowitz at
Burnham. Please go ahead.
D. Liebowitz Let me add my congratulations to everyone else's. A few
brief questions. Are there any differences in the accounting
practices of the two companies and might that have any
impact on how the combined accretiveness works out?
S. Orr Actually, as you go through a process like this, David, we
each have an opportunity to study very carefully what our
various accounting practices are. The one that probably has
gotten the most, I'll call it notoriety over the last
several weeks has been around how goodwill has been treated.
And True North has made a change to their practice and is
now writing off its goodwill over a much shorter period. I
think standard convention in a lot of industries, including
ours, historically has been 40-year goodwill lives. True
North has agreed with the SEC to use nothing more than 20
going forward.
Now as it relates to Interpublic, because the SEC and the
office of the chief accountant over the last several years
has been very public about their attitude of using no more
than 20 years, for the last several years, Interpublic has
been using a 20 year maximum as a guiding rule of thumb. So
we feel that as it relates to our current acquisition
practices and the accounting that we use relating to
acquisitions we've done since the SEC has come public with
that attitude, is very much in step with what True North is
doing. And so we think there is on a go-forward basis a high
degree of parallelism between their methodology and ours.
Any of the other minor differences in practices between the
two companies are really trivial in the context of a
combination of this size.
D. Liebowitz My second question. I'm getting feedback on the line now. I
apologize. What is the size of the accretion of earnings in
2002?
S. Orr There will be some information put up on our Web site and
made publicly available to help people start to get a gauge
on that, David, and I would refer you to that information.
D. Liebowitz All right. What about cash flow? Will the cash flow gains be
of the same magnitude or percentage as the accretion?
S. Orr Actually, David, the cash flow story and the cash earnings
story is an even better story than the GAAP EPS story.
D. Liebowitz Great. And my last question, are there any hidden assets
that you've discovered at True North? In other words, do you
have a building that may be worth $10 million or $20 million
or $100 million, or other goodies of that nature, which
after the deal is consummated, you'll be able to retrieve
and put into the treasury?
S. Orr You know I'd like to have Kevin answer that question because
I might learn something from what he says. But the short
answer is no, David. There's nothing up anybody's sleeve
here.
D. Liebowitz Okay. Thank you very much and again, congratulations.
Moderator We have a question from the line of Diana Drepkin
of...Capital. Please go ahead.
D. Drepkin Hi, thank you. Can you talk a little bit about the
regulatory approval needed for the merger to close?
Specifically, which approvals will you need to close and
whether or not you are going to need the foreign approval?
J. Dooner Well, obviously, this is a question for the general counsel
of Interpublic. Obviously we're going to need a Hart-Scott
approval and it is likely that there would be some foreign
approvals that we will have to deal with, as well.
D. Drepkin And which one of approvals would it be?
J. Dooner I'm not sure exactly which countries, but a number of them,
as you well know, require antitrust approval. Some in
Europe, some in Latin America, and we'll deal with them as
we need to.
D. Drepkin Okay, thanks.
Moderator The next question comes from the line of Jim Dougherty of
Prudential Securities. Please go ahead.
J. Dougherty Hi. This call is for the True North guys. When you say
you're comfortable with the first quarter estimates and the
2001 estimates that are currently out there, and the current
being on the first call is $0.20 for the first quarter and
$2.03 for the year. Specifically, are those the kind of
numbers you're comfortable with?
K. Smith Well, the first quarter consensus was $0.24 prior to the
time that we announced the change in goodwill amortization,
which we believe will have about $0.07 impact on the
quarter.
J. Dougherty So you're really saying you're comfortable with $0.17.
K. Smith We think that's about the right number, yes.
J. Dougherty What would be the...
J. Dooner Jim, you're breaking up.
J. Dougherty Oh, okay. Would it be reasonable just to extend that kind of
proportion across the air and say that the...after... of
those amortization changes, that should be more like... to
$2.00, or should be $1.85 to about $1.90... close to $2.00
plus? Is that more like what we're looking for?
K. Smith Again, the full year consensus was $2.15 at the time we
announced the change, and the amortization is pretty much on
a straight-line basis.
J. Dougherty Okay. Thank you.
Moderator The next question comes from the line of Todd Mason of
Alpine Associates. Please go ahead.
T. Mason There's no question.
M Okay, thank you.
Moderator Then our next question comes from the line Ed Bree at
Sterling Capital Management. Mr. Bree, your line is open.
E. Bree Yes, I'd like to know, the first question is who is offering
the fairness opinions on this transaction at a price that
appears tremendously below recent advertising transactions
of this magnitude?
D. Bell The fairness opinion for Truth North is rendered by Morgan
Stanley Dean Witter.
J. Dooner And for Interpublic by Goldman Sachs.
E. Bree Okay. And I guess a question for David. Obviously, the
valuation being applied to True North at today's prices is
very low. What is your expectation as far as the level of
influence on Interpublic being able to buy back a
significant amount of stock if in fact you think their stock
is very undervalued?
D. Bell Clearly, Interpublic's ability to buy back stock is a
decision of Interpublic's management. What we believe in the
fairness opinion and what we believe looking at it is that
the exchange rate that we're talking about here is an
extraordinarily good exchange rate that is fair to both
parties. We believe at True North, in our opinion, that
Interpublic's stock is undervalued and the exchange rate is
the issue we look at very carefully.
E. Bree I just comment that watching a deal of this magnitude being
financially and strategically accretive to the buyer from
the get go is a real testament to Interpublic's negotiating
ability. But again, I just want to express my disappointment
on the valuation. Thanks.
Moderator We have a follow up question from the line of Karen Ficker
at ING Baring. Please go ahead.
K. Ficker I was looking for a little bit more color on, I guess, the
language of the deal and the transaction. Is it pretty much
boiler plate in terms of the $80 million break up fee and
that you cannot enter into any new discussions with outside
parties, but that the former discussions or former parties
are grandfathered in?
S. Orr No. No comment, Karen.
J. Dooner I think we've said all we're going to say about that right
now.
S. Watson Operator, if all the further questions are repeats we would
like to end the call now.
Moderator Okay. There are no further questions in queue at this time,
then.
S. Watson Thank you, everyone, for joining us. We will be available to
answer your questions individually. My phone number is
212-399-8208.
Moderator Ladies and gentlemen, this conference will be available for
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