The top of the advertising world got even smaller yesterday as Interpublic Group of Companies announced its intention to acquire True North Communications for $2.1 billion in stock.

The deal creates the largest advertising network in the world with $7.2 billion in annual revenues. It also establishes what could be the world’s largest promotion agency network with more than $350 million in net revenues and well over $1 billion in annual billings.

True North has aligned most if its promotion holdings into Wilton, CT-based Marketing Drive Worldwide (which underwent a restructuring of the top ranks earlier this year that resulted in the departures of executives Wes Bray, Mickey Goodman, and Mickey Jardon). IPG’s interests are more scattered, but reside primarily in Chicago-based DraftWorldwide and St. Louis-based Momentum.

(Reuters)–Interpublic Group of Cos. Inc. has agreed to buy rival advertising group True North Communications Inc. for $2.1 billion in stock in a deal that would create the world’s No. 1 advertising and marketing communications concern, the companies said on Monday.

The transaction would bring together top advertisers such as Coca-Cola Co. and Compaq Computer Corp. and would give Interpublic ownership of True North’s lucrative FCB Worldwide, the No. 4 U.S. ad agency.

“If you look at some of the individual companies (of True North), you have some very strong businesses such as FCB,” Interpublic Chief Financial Officer Sean Orr told Reuters in an interview. “It gives us another brand that we can offer to some of our mammoth clients such as General Motors,” he said.

Under the deal, Interpublic will swap 1.14 of its shares for each True North share. The exchange ratio values True North at $40.24 a share, a premium of only 2% over its closing price of $39.31 on Friday on the New York Stock Exchange.

New York-based Interpublic, whose ad agencies include McCann-Erickson and Lowe Group, said the deal would add to its earnings per share this year and in 2002. It said the deal would also yield cost savings of $25 million annually.

Interpublic said David Bell, True North’s chief executive, would become vice chairman of Interpublic, with John Dooner, Interpublic’s chief executive, staying in the top position.

Combined, the companies would have annual revenues of $7.2 billion and would supplant WPP Group Plc of Britain as the largest advertising group in the world.

Interpublic said that it was sticking with its full-year earnings guidance of between $1.65 and $1.70 a share, saying that the deal would have a greater impact on earnings next year.

“We are not expecting that the impact on this year is significant enough to change our guidance. Accretion will be more significant in 2002,” Orr said.

But the market appeared unconvinced about the deal. Interpublic’s shares were down $1.10, or 3 percent, at $34.20 while True North’s fell $1.86, or 4.7 percent, to $37.45.

“From Interpublic shareholders’ perspective, it’s a neutral deal,” said Lauren Fine, who tracks the advertising industry for Merrill Lynch.

Interpublic has already been hit by soft results at its Lowe Lintas Group, which has been feeling the effect of merger–related client losses. And with growth at FCB expected to be limited this year, it would give Interpublic another agency that was not performing that well, Fine said. “It’s a doubling down as far as I can tell,” she said.

But other analysts were more upbeat about the deal.

“This is a good strategic fit,” said Karen Ficker, analyst at ING Barings. She said that she expected minimal client conflict from the deal, now that True North no longer has DaimlerChrysler’s Chrysler Group account.

Interpublic’s Orr declined comment on how much client conflict the deal might create. “We have taken the risk of conflict into account in evaluating the deal,” he said.

The deal ends months of speculation that Chicago-based True North would be acquired by a larger company. True North, whose other ad agencies include Bozell Group, has been seen as a takeover target since FCB lost the multibillion-dollar Chrysler account to rival BBDO Worldwide, a unit of Omnicom Group Inc.

In late January sources said the French group Havas Advertising was in talks to take over True North for a mixture of cash and stock. Earlier, True North was in talks with Cordiant Communications Group Plc of Britain but the discussions failed. Speculation that a bidding war over True North might develop intensified when Interpublic said in a filing with the Securities and Exchange Commission that it was in acquisition talks.

But analysts said it might not be the end of the foreign suitors, saying that if Havas was still serious about the deal, a counter bid might be in the offing.

Consolidation in the advertising industry has been heating up, with major advertising groups buying up smaller players. Last year France’s Publicis doubled its size by acquiring British agency Saatchi & Saatchi.