CLOSE-UP: OPINION/CORDIANT COMMUNICATIONS - Cordiant is paying a heavy price for its late arrival on the scene, Bob Willott says

It's not been a happy financial year for Cordiant Communications

Group, culminating last week in a third profit warning and predictions

of a 9 per cent decline in revenue. So what's gone wrong?



Amputated from the former Saatchi & Saatchi empire, Cordiant had two

simple choices - become a seriously big player in its own right or find

a friendly buyer.



The decision to get bigger and stronger was probably sound in principle

but the group lacked any high-profile, heavy-hitting agencies. It also

had insufficient market and financial clout to buy one - and most of the

plums had already been swallowed up anyway.



That is at the heart of Cordiant's dilemma. It became a potential buyer

when most of the best goods had already been sold. Those that were left

were of variable quality and carried high price tags.



Unable to clamber on to the top rung of the agency ladder, Cordiant,

under its chief executive, Michael Bungey, committed itself to building

a broader based marketing services group. But again it was buying too

late in the economic cycle and paid foolishly high prices. The

Lighthouse Global Network, which included arguably fading stars such as

Fitch and Financial Dynamics, was bought for a vastly inflated price.

Even the cost of the specialist Healthworld was inflated by market

conditions, however good the strategic objective.



As the economic downturn came, Cordiant found its income and profits on

the decline while the cost of its acquisitions - and the interest

charges it carried - escalated. Nevertheless the circumstances are less

frightening than those faced by its predecessor Saatchi & Saatchi a

decade ago.



But there is no doubt that Cordiant has a steep hill to climb if it is

to remain an independent public company. And Britain needs public

companies in the sector. It would claim to be the creative home of

advertising and should be able to demonstrate the ability to remain a

powerful economic centre for the industry as well.



Of course, Cordiant is not the only victim of its own strategy. The

acquisitive French quoted groups - Publicis and Havas - are reporting

very poor results.



Havas is losing money and Publicis has made no more profit with Saatchi

& Saatchi than it did without it. And if the French groups adopted the

same accounting rules as the US agencies, they would be in a very bad

way indeed.



But what else could Cordiant have done? If you need to get bigger and

businesses are not available to buy at sensible prices, is it possible

to do nothing? Sadly not.



Would Cordiant have fared better if it had downsized into a few top

quality niche businesses at the outset? Again, its portfolio of

companies contained few top-quality market leaders. Maybe more energy

could have been put into boosting the quality and reputation of its

existing businesses and in improving its profit margins.



It seems that Cordiant's troubles are more about timing than intent, and

as much about inherent weaknesses in what it already owned as in the

quality of what it could buy.



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