Live Issue/Cordiant Demerger Rumours: Can Cordiant afford to discard Saatchis or Bates? - A sale offers a short-term gain but a longer-term fall in profits, John Tylee says

To demerge or not to demerge, that is the question the Cordiant group has purportedly pondered as it returns to financial equilibrium after the sacking of Maurice Saatchi.

To demerge or not to demerge, that is the question the Cordiant

group has purportedly pondered as it returns to financial equilibrium

after the sacking of Maurice Saatchi.



Cordiant is emphatic that there is no question of cutting loose one or

both of its global agency networks, Bates Worldwide and Saatchi and

Saatchi (Campaign, last week).



But senior managers in the network are looking for the decisiveness

Hamlet lacked if the financial health of the group and staff morale are

to be improved.



’You can only firefight for so long,’ one senior manager complains. ’I

see no sign of a recovery, only a complete lack of vision.’



Another former top agency network executive is equally alarmed. ’There’s

considerable despair at Cordiant within the group agencies,’ he

claims.



’They feel it’s impersonal and does nothing to stimulate new

business.’



Two years ago Mars took its revenge on the group for Maurice’s ousting

by ripping out more than pounds 270 million worth of business. Since

then, under its chief executive, Bob Seelert, the group’s fortunes have

lifted to the point where it has a solid financial base and almost no

net debt.



Now the group must get its US agencies functioning as the true engine

rooms they ought to be. It’s the huge task facing Jennifer Laing, who

recently switched from running the Saatchis office in London to New York

and must attempt to become the first Brit since David Ogilvy to run a US

agency successfully.



Also, Bates Dorland and its Saatchis sister shop in London both suffered

fallow new-business periods last year.



Although Cordiant says it is always looking for ways to ’maximise

shareholder value’, it insists that it has no intention of selling.

Indeed, such a sale would be expensive and difficult, while losing it a

vital source of revenue. In the long term, the Saatchis network alone

could never sustain Cordiant’s claim to be a leading global

communications group alongside Interpublic and Omnicom.



’To achieve a sensible level of profitability the group needs its two

networks,’ Lorna Tilbian, Panmure Gordon’s advertising analyst,

argues.



’In fact, the current trend is to have three.’



Industry watchers see Cordiant’s problems as twofold. One is the quality

of its senior management, which some observers believe needs to be

improved.



The other is what is seen as the conflicting messages sent to potential

clients by a group that owns one network whose name is synonymous with

classy advertising and another perceived as old and stodgy.



Seelert, however, sees the different networks not as a weakness but an

addition to the diversity of the group’s offering. ’Having such

multiplicity in the networks is probably good,’ he says.



Martin Sorrell, WPP’s chief executive, would certainly begin circling

should the ’for sale’ signs appear. Prevented by his Unilever client

from bidding for Saatchis, which has conflicting Procter and Gamble

business, he is thought to be interested in Bates, particularly because

of its strong operations in the UK, Germany and Australasia. But he

might have trouble convincing the heads of his existing networks, J.

Walter Thompson and Ogilvy and Mather, that the addition of Bates would

not act as a millstone.



Also, it’s debatable whether Bates, described as an alliance of fiefdoms

rather than a network, could survive a sale intact. ’It’s quite possible

that the heads of the best offices would take exception to it being sold

over their heads and would want to buy themselves out,’ an industry

source says.



Maurice Saatchi would be unlikely to join Sorrell at any auction,

despite the obvious attraction of returning in triumph to the scene of

his ousting.



Not only would the revelations that followed his sacking make raising

the necessary funds difficult, but he would risk alienating his M&C

Saatchi partners who have no wish to repeat their bitter experiences of

public companies.



A buyout of Bates by its own management is not impossible, although

Seelert rules it out. The idea is not new and first surfaced when

Cordiant - in its previous incarnation as the Saatchi and Saatchi

group - hit financial problems in the early 90s.



Michael Bungey, the Bates Worldwide chairman, is believed to have

sounded out a number of banks at the time. But the plan fizzled out when

Robert Louis-Dreyfus, the then group chief executive, managed to pacify

the holders of the group’s Europreference shares with a share issue.



’Bungey wants to run Cordiant,’ a former associate says. ’If he can’t he

would like to sit on top of his own worldwide network.’



The complicating factor in any sale, however, would be Zenith, the

group’s media buying division, and its ’poison pill’.



Charlie Scott, Cordiant’s chairman, says: ’Under no circumstances is it

conceivable that we would abandon Zenith. It’s been the focus of our

strategy for Saatchis and Bates and I can’t envisage a situation that

would change that.’



Meanwhile, from his office in Golden Square, a few hundred yards from

where the seeds of his empire were sown 27 years ago, Maurice Saatchi is

doubtless reacting to recent reported events with wry amusement. As a

senior manager in a Cordiant subsidiary puts it: ’Breaking up the group

would be the final irony - and one that Maurice would enjoy.’



CLIENTS SERVED IN ONE OR MORE MARKET



Saatchi and Saatchi Advertising Worldwide



Castlemaine XXXX



Alcatel, Alsthom, Allied Domecq, Bonduelle, Borden, Bristol Myers

Squibb, CPC, Cadbury Schweppes, Carlsberg, Danone, Groupe, Duracell, Du

Pont, Kodak, Electrolux, Essllor, G-Tech, Grand Metropolitan, Guess Inc,

LVMH, Matsushita, Nethod (Multichoice), Hewlett-Packard, Johnson and

Johnson, Lion, Nathan, LVMH, Novartis, PepsiCo, Pozuelo (Riviana Foods),

Procter and Gamble, Ralston Purina, Samsung, Sara Lee, Seiko, Shell,

Singapore Tourist Board, Sony, Tenneco (Monroe), Tetra Laval, Toyota,

Visa, Walt Disney, Weetabix



Bates Worldwide



P&O European Ferries



Alberto Culver, Ansett, Avis, British American Tobacco, Campbell Soup,

Coca-Cola, Compaq, CPC, Cunard, DHL, DZT (German, Tourist,Association),

EDS, Estee Lauder, Ever-Ready, Gemstar, Goodman Fielder, Heineken,

Hitachi, Hong Kong Bank, Hong Kong Tourism, Jamont, Land Rover,

Mandardin Oriental, Mobil Oil, Nokia, P&O European Ferries, Regaine,

Roche-Nicholas, Shell, Spanish Tourism Board, Spillers, Tchibo, 3M,

Unicef, Warner-Lambert, Wendy’s



Source: Ad Age International.



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