Freud Communications really doesn't deserve all this attention. At the end of the day, it's just an average-sized PR company - 20th in PR Week's top 150 league table, with fee income of £7.48m last year. Yes, it's currently the largest independent consumer PR company in Britain, but that's nothing to get excited about.

Indeed, the only really fascinating thing about Freud Communications is its founder and chairman, 38-year-old Matthew Freud. The great-grandson of Sigmund Freud, son of journalist and raconteur Clement Freud and nephew of painter Lucian Freud, he is also the PR behind some of Britain's most heavily exposed names (Chris Evans, Geri Halliwell, Guy Ritchie, Ali G etc...) and some of the most brilliant/ludicrous PR stunts in recent media history (Geri Halliwell dates Chris Evans, Geri Halliwell votes Labour, Geri Halliwell acquires dog etc...).

In August his newsworthiness increased still further when he married Elisabeth Murdoch and became a son-in-law of the world's most powerful media magnate. Indeed, there are so many questions waiting to be asked that it's impossible to know where to begin. Does the editor of the Sun answer Freud's calls more quickly given the Murdoch connection? Has Chris Evans gone bananas? Is it true that Freud now acts as an unofficial PR consultant to Tony Blair?

"Have I ever given the prime minister advice?" Freud mutters to himself, after a pause so long that you could read a short story in it. "There's no clever way of answering that." How about yes or no? Kris Thykier, the 29-year-old managing director of Freud Communications, offers a helpful quote. "Matthew's always been very open about his work for the Labour party... he's organised events and..."

"No," interrupts Freud, snapping out of his reverie. "No. I have expressed my opinions in political circles about, you know... I'm on various steering groups, some of which report to the prime minister. I mean, yes." Why so coy? "Well, it's a pull-out quote isn't it?" says Thykier. "I advise Blair says Freud."

"Erm, actually," says Freud, loosening up, "the last piece of advice I gave to Tony Blair was not to take so much notice of what he reads in the papers. There's a stand-out quote. But that's for your delectation only."

Freud and Thykier carry on in this deeply paranoid manner throughout our meeting. Freud turns the tape recorder over when it stops running, switches it off at the end of the interview and offers insights into why he speaks on-the-record so rarely ("A journalist interviewing a PR is a no-win situation").

Thykier, meanwhile, kindly offers a list of "useful" people who might be able to shed some light on the firm (needless to say, everyone on the list is decidedly positive), and offers a running commentary on the way the interview is going ("Damn, there are a lot of personal questions for a corporate piece!").

Such paranoia is entirely understandable, however. Despite being one of the most influential PRs in Britain, Freud has been spectacularly bad at managing his own public image. In recent years the press has gloried in publicising his difficulties, which have included his on-off relationship with Elisabeth, his high-level involvement with the disastrous Millennium Dome project and the failure of a number of internet-related businesses he has been involved in.

Then, just before his wedding this summer, there was one final Freudian blip: he gave an interview to Vanity Fair where he implied that his future father-in-law was both sexist and gullible. So, did the most exhausted-looking man in Britain get a tongue-lashing from the world's 39th richest man after he exchanged vows?

"No, no" insists Freud. "I called him to apologise that the Telegraph and the Guardian had chosen to be mischievous about something that was taken entirely out of context and he was generous and magnanimous and said 'think nothing of it'. I had said those things with a smile and with some irony and he was extremely good [about it]."

"1999 and 2000 were very difficult years I admit - they were intense on personal and professional levels and it was all very public. But I do have a good understanding of managing public profiles and I always say to people: 'When they write shit about you, don't mind'. I think I deserve every ounce of the bad press I get because I have made my trade out of the media. I can hardly complain when I get misrepresented."

The Matthew Freud story now, he insists, is very positive: 2001 has been a good year. The £1m he put into internet investments, which at one point made him a paper fortune of £200m, is now worth around £1.1m. And most of his money is now safely invested in bricks and mortar: he has stakes in smoothie company Pete & Johnny's, The Third Space, a Soho gym, and the Groucho Club. Most importantly, however, he has bought back Freud Communications, the PR firm which began life in 1985 as Matthew Freud Associates - a snip at £12m.

Freud had originally sold the firm to ad agency Abbott Mead Vickers in 1994. AMV was then taken over by conglomerate Omnicom and the subsequent difficulties led to a management buy-out of Freuds this summer, financed with money from the directors, Barclays and one outside investor - Merrill Lynch media analyst Neil Blackley. Freud, who had run the firm under AMV beyond his five-year earn-out period, is understood to have secured a 51 per cent stake while the other 11 directors, including Thykier, who was Freud's best man and looks after the entertainment side of the business, have undisclosed stakes.

The marketing industry has been full of speculation about why Omnicom sold Freuds for a song - after all, it was profitable, and PR businesses like it are typically valued at three times their annual billings. At the time, reports valued the company at up to £20m, some £8m more than Freud had sold it for in 1994. Although Freud refuses to disclose any details ("one of the nice things about having a private company is that you can tell people to fuck off when they ask impertinent questions"), it's obvious what happened: the executives at Freuds threatened to leave unless they could buy the company back, and Omnicom, understanding that a people business like Freuds was worthless without the people, agreed.

"I sold to a company that then sold itself to another company, and I became a very, very small piece of an enormous corporation," explains Freud, who at one point was reported to have asked to buy the company back for just £5m. "I had sold to AMV and ended up being owned and run by Omnicom, people that I didn't know. I, personally, was not going to stay - I had capped my earn-out and there was no financial incentive for me.

"After discussion with the management there was a sense that Freuds without me would be a less interesting place to be - it wouldn't have the kind of edge it was born with. So the starting point was not: 'What's this business worth?' We agreed that we should be able to buy it back for what we sold it for.

"An MBO really was the best thing for this company. We have to create an environment where people are absolutely dedicated. That's easier to do with people who are stakeholders in their own business."

Another major factor behind the MBO was that Freuds' executives felt unable to expand the business as quickly as they wanted to - decisions required approval from management units around the world. But now they have no one looking over their shoulders, they are set to change what Freuds is about.

To understand where Freuds is going, one first has to understand where it is coming from. Over the past decade, tapping into the ever-growing appetite for celebrity news, Freud Communications has become the best in the business at providing the media with what they want. They helped make Chris Evans, a client before his Big Breakfast days, the most famous man in Britain even though he never had a TV or radio audience of more than 3m, and they helped make Geri Halliwell the most famous woman in Britain.

But the key to the financial success of the business has been its ability to turn celebrity into cash by bringing together the interests of the media and the consumer-goods industry. The textbook example is the London opening of the hamburger restaurant Planet Hollywood in 1992. Realising that the media is not interested in burger bars, but is interested in movie stars, Freuds simply brought the two together by ensuring that a number of big Hollywood names, including Sylvester Stallone and Eddie Murphy, were present. The result was reams of coverage, lots of it with the corporate logo within eyeshot.

Freuds' trick of "cross fertilisation" has also been in evidence this year, when it managed to get TV presenter Cat Deeley featured in numerous glossy magazines, tabloid newspapers and on the cover of the Sunday Times 'Style' section, wielding the new Braun Oral-B 3D Excel electric toothbrush.

Celebrity has never been the main earner - at the moment, only 20 per cent of the company's £12.8m annual turnover comes from the entertainment industry, whereas consumer brands account for 70 per cent and corporate work for 10 per cent. But celebrity is certainly central to its philosophy.

"Entertainment is not just less lucrative - sometimes it provides no income," explains Freud. "We have never enjoyed charging people personally. Chris Evans has never paid me a penny in his life - we get paid by whoever he's working for. But we don't get anything from him at the moment because he's not working - the pub doesn't pay us."

But these days, Freud Communications wants to do more than just throw celebrities and company clients together in PR stunts. The directors of the company want to "challenge the traditional architecture" of PR companies. In short, they want to become a wider-based marketing company.

Paul Melody, the creative director, explains: "We want to combine the entertainment and brand sides of the business and shift from interruption marketing like PR, where you just drop the message in front of the consumer, to integrated marketing, where the brand itself is the message. Traditional PR would, for instance, involve getting a product on Richard & Judy, but integrated marketing is about saying, hey, let's make our own programme."

Thykier points to Lynx, a Freud client, as a good example. The toiletries brand wanted to widen the age range of its market. Rather than just having straightforward celebrity endorsement, Freuds got together with Fantasia, an underground dance music label, and created a Lynx-branded CD. A year later it put together a programme of annual dance music events sponsored by the brand, which were then televised on Channel 4. "We found an entertainment-based way of talking to Lynx's consumer base," says Thykier. "But we created the content ourselves."

This change in direction seems sound, not least because the tide seems to be turning against celebrity publicity, Freuds' traditional stomping ground. Piers Morgan, the editor of the Mirror, recently banned his staff from giving copy approval to celebrities, and if the anti-PR movement gathers pace, Freuds could find it harder to place stories. "Freuds aren't evil manipulators, but PR is about controlling newspapers and our policy means they are going to have less power," says Kevin O'Sullivan, showbusiness editor at the Mirror.

The shift is also timely because Freuds' traditional methods are looking increasingly tired. "They have become corporatised and lost their spark," says Graham Goodkind, former managing director of Lynne Franks PR and founder of Frank PR. It's hard to know how they can rectify that, but if anyone can do it, Matthew can."

Others will be more sceptical. Although the firm is exceptionally good at securing press coverage for its clients, it has not, traditionally, shown much of an aptitude for strategic thinking; the long-term impact of its campaigns is questionable.

The Planet Hollywood campaign, for instance, resulted in a mass of coverage, but the company eventually went bust. Freuds managed to get the story of the Pepsi relaunch plenty of media coverage, but sales were disappointing. And while the Geri Halliwell and Chris Evans story got lots of coverage, did it really benefit anybody? Although Freud still insists it was true ("they fell in love but it didn't last very long"), the "romance" was endlessly dissected and ridiculed in the press. "That was a tacky sham," says publicist Max Clifford, who knows a thing or two about tacky shams. "The Geri thing has backfired - it's overkill, it hasn't done her any favours at all."

Indeed, Freuds still has a lot of work to

do before it wins acceptance as a serious marketing company, but at least Freud understands this: "As a standalone marketing discipline, PR can be very dangerous. You can raise the volume level to 11, but if you have very little to say you will be caught in a slightly embarrassing silence. We made much too big a story out of the fact that Pepsi had changed its livery and therefore three months later the media was justified in asking whether sales had shot up."

Predictably, Freud is convinced he can make a success of Freud Communications, the integrated marketing company. He has already begun the task of refocusing, dropping accounts like Vladivar Vodka, supposedly because the fees were too low, and concentrating instead on clients for whom it can provide a wider, more lucrative, range of services. And he says he is confident of achieving double-digit growth in his first MBO year, recession or no recession.

"If the result of recession is that people demand more value from their marketing then we can only benefit. But the future of stand-alone, independent, single-discipline agencies is limited - the consolidation is not going to stop. We will almost undoubtedly end up as part of one of the marketing networks. We might acquire companies, but I don't want Freuds to get any bigger - we have 100 people and that's about right."

But does the man who once said that "there's nothing sadder than a 40-year-old PR person" plan to put a time limit on his involvement with Freud Communications? "When I said that, I assumed I'd be out by 30," he laughs. "I can't see a massive change of direction in what I do. The reason why I'm still here is that I still do care quite passionately about media. The day that stops is the day is the day I fulfil my own prophecy and do something else."

For Matthew Freud on the Groucho Club, the launch of Sky Digital, Chris Evans' bid for the Star and the Hartford Group