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Investors Pound True North on DaimlerChrysler Decision

Still, the stock could be a takeover play even should it lose out to Omnicom.

Automotive giant



managed to turn ad agency

True North Communications'


stock into roadkill Thursday.

The Auburn Hills, Mich.-based company is reviewing its $1.5 billion advertising account, and may consolidate it at one of its two agencies -- True North or

Omnicom Group

(OMC) - Get Free Report


Investors pummeled True North, which dropped $6.50, or 15%, to $37.50, on the thinking that DaimlerChrysler is True North's biggest account. Omnicom emerged relatively unscathed, falling $1.75, or just 2%, to $80.

According to

Competitive Media Reporting

, which tracks ad spending, DaimlerChrysler spent $725 million last year on advertising for its Chrysler/Plymouth and Jeep brands, which are handled by True North unit

FCB Worldwide

. DaimlerChrysler spent $652 million on Dodge, which is handled by Omnicom unit



Put simply, investors unloaded True North shares because the DaimlerChrysler account represents anywhere from 7% to 9%, or $120 million to $140 million, of the company's projected 2001 revenue, according to analyst estimates. For Omnicom, the bigger of the two ad holding companies, the lost revenue would account for about 1% of overall 2001 revenue, even though the actual dollars lost -- between $80 million and $100 million --isn't much less than what True North has at risk.

Lauren Rich Fine

, analyst with

Merrill Lynch

, downgraded her rating on True North from near term accumulate to near term neutral on the news. Fine, in a note released Thursday morning, said should True North lose the account, "We estimate that this translates conservatively into 10% to 15% of True North's earnings at risk."

Investors have apparently already concluded that True North will come out with the short end of the stick. "There ... seems to be speculation that True North is more likely to lose the business," says Alan Gottesman of

West End Consulting


The fact that Omnicom handles the bulk of DaimlerChrysler's nontraditional marketing services is "an important advantage in our view, and could be the deciding factor," said Vivian Kuan, analyst with

Deutsche Banc Alex. Brown

, in a note she put out Thursday. Omnicom's greater global reach may also be an advantage. DaimlerChrysler said it would likely decide on the business by the end of the year.

Kuan said she is maintaining her strong buy rating on the stock, in part because should True North lose the account, the company, which is already regarded as a likely takeover target because it is one of the smaller ad holding companies, will become an even more tempting target.

Without an automotive account among True North's clients, potential acquirers wouldn't run the risk of a client conflict -- not a small consideration for aggressive buyers such as

WPP Group



Interpublic Group of Companies

(IPG) - Get Free Report


The flip side, of course, is that True North could end up with the entire $1.5 billion account, a point True North's chairman and chief executive, David Bell, made in the statement the company issued late Wednesday.

"We see the consolidation of Chrysler Group's advertising and media as a huge opportunity for us," he said. "We think our chances of being selected for the consolidated business are excellent."