Changing times for Hakuhodo
by David Kilburn
Radical change lies ahead for Hakuhodo, Japan's second largest agency. According to Nihon
Keizai Shimbun ('Nikkei'), Japan's leading business newspaper, the family owned agency
aims to list directly on the first section of the Tokyo Stock Exchange by 2003. According
to the newspaper, Hakuhodo plans to tap the proceeds from an initial public offering to
build its overseas business and invest in digital media services. Hakuhodo officials said
they had no comment to make on the report but acknowledged these topics are under
discussion.
In its fiscal year ended November 1998, Hakuhodo booked a pretax profit of £48 million on
revenue of £3.9 billion. Revenue growth has been slowing in recent years amid Japan's
recession. For the first six months of this year, Hakuhodo saw gross billings decline 2.2%
on 1998, following a 4% drop last year. As in most large Japanese companies, by far the
majority of Hakuhodo's 3,600 staffers in Japan are 'lifetime employees,' which makes
downsizing difficult. Consequently, profits decline swiftly in recession. Though this
trade-off would be unpalatable in a Western environment, it is generally considered good
form in Japan where shareholder value is not the same priority.
Long term, Hakuhodo intends to become a significant international player but in the
immediate future needs to invest in its domestic operations to cope with competitive
pressures and the rapid development of digital media and the Internet.
Ongoing business no longer generates enough free cash for Hakuhodo's investment needs. It
has also become difficult for the agency's wealthy owners to pump in the necessary
additional funds. In addition, according to Nikkei, the agency is concerned that bank
loans alone will no longer cover its working capital requirements.
A public listing would most likely see the agency's current owners, the Seki family,
withdraw from overall control of Hakuhodo's management. Currently, descendents of the
agency's samurai founder, Hiranao Seki, and non-profit foundations set up and controlled
by the family hold all Hakuhodo's equity. Clan patriarch, Hiromasu Seki, a spry 94
year-old, is Hakuhodo's honorary chairman and - despite his advanced years - visits the
agency almost on a weekly basis for meetings with his firm's managers as he has done for
much of this century.
Industry leader Dentsu is also stepping up its own investment in international operations,
digital media, and the Internet, and is planning a Stock Exchange listing in 2001.
Asatsu-DK, Japan's #3 agency has been a public company since 1987.
Now that Hakuhodo's plans have been leaked, the pressure increases on a number of other
privately held agencies to restructure and recapitalize themselves in order to survive.
Chief among these are fourth ranked Tokyu agency, owned by Tokyu Corporation (a loss
making conglomerate of railway, retail, and construction companies); and fifth ranked
Daiko, owned by the Asahi Shimbun newspaper and a provincial railway company. Sources say
that Daiko has been rebuffed in attempts to merge with other Japanese agencies and that
the Asahi Shimbun is currently strongly opposed to selling equity to a foreign buyer.
Tokyu meanwhile is in talks with Publicis that are foundering on the issue of who should
control a proposed joint venture between the two.
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Published in Media Week
in September 1999 |
