The moth-eaten fire blanket with which the Bates network’s Cordiant
parent tried to extinguish takeover talk last week succeeded only in
fanning speculation of an imminent bid by True North.
The Stock Exchange denial that the group was involved in discussions -
described by one Bates executive as ’Clintonesque’ in their careful
phrasing - was unconvincing. Within 48 hours, even Cordiant insiders
were whispering about what an attractive business Bates was and how
there were no ill-fitting subsidiary operations to inhibit a ’clean’
The shift appeared to be mirrored by Bates’s chairman, Michael
From his stance at the time of Bates’s demerger from the Saatchi &
Saatchi network in 1997 - when he declared that ’this company isn’t for
sale as far as I’m concerned’ - his talk last week contained a
significant caveat. ’Any deal will be on our own terms. If anybody says
they can accelerate our business growth stronger than we can and double
the size of the company within three years, I’m willing to listen.’
Few now doubt that Cordiant has hoisted up a ’for sale’ sign, even if
nobody is allowed to shout about it until annual internal auditing
procedures are completed. If US reports are to be believed and Bates and
True North have already exchanged financial statements, shareholders
cannot be kept in the dark much longer.
One Cordiant shareholder is certain of early action. ’Bates is going
nowhere,’ he says. ’It’s not going to deliver on the promises it has
made to the City and the only way out is to sell it.’ A senior Bates
manager in the US predicts: ’We’ll have a different corporate ownership
by the summer.’
Identifying a single reason why Bates finds itself in need of a rich
partner is difficult. Its predicament probably stems from the 1997
’As the rest of the global communications industry was consolidating, we
were fragmenting,’ a Bates source says.
While all the industry players have made purchases, giants such as
Interpublic and Omnicom have pursued voracious acquisition programmes to
provide growth for shareholders. Now most of the tastiest morsels have
disappeared, leaving Bates and Saatchis to be gobbled up by the
Bates’s survival as a standalone operation is made more difficult by a
lack of global clients to bind together what is a very disparate
British American Tobacco is the only one left since Mars pulled out
pounds 270 million of business in revenge for Maurice Saatchi’s ousting
by the then Saatchi & Saatchi group.
But BAT’s long-term prospects as a major advertiser are open to question
as worldwide legislation to curb smoking grows ever stricter. And
augmenting that business with other global accounts is a formidable
As a result, Bates has had to build its international business piecemeal
and on a regional basis - Seat in Europe, Hyundai in Korea and the US,
Cussons toiletries in the UK and China, Nokia mobile phones in 11
Not only is the network at perpetual risk of losing this business
through consolidation but it has not tried to keep certain sectors free
to allow it to pitch for some of the global accounts that do come up for
Last year it was forced into a hasty juggling act when it won a
pan-European image campaign for Hyundai and Seat’s pounds 100 million
pan-European account in the same week.
Nor does the Bates agency in New York effectively deliver US-based
multinational advertisers into the network - ’There are good signs but
it has got a way to go,’ a network source says - although this is offset
by a strong group of US regional shops.
Elsewhere, Bates’s big strengths lie in Australia, where George
Patterson Bates and the Campaign Palace have a high profile. The Bates
Latin American agencies are also said to perform well.
But the real attraction for True North is Bates Europe. Forced to
rebuild its FCB operation almost from scratch across the Continent after
dismantling its joint venture with Publicis, True North is trying to
integrate the agencies gained from the divorce settlement with the
patchy Wilkens network it acquired two years ago.
Although Bates Dorland in London has yet to regain its shine, the UK’s
seventh ranked agency would be a good catch along with the very healthy
Delvico Bates in Spain. So would Scholz & Friends, Cordiant’s leanly run
and highly profitable German network.
A possible scenario is to merge Bates with True North’s Bozell network,
although that would precipitate a serious conflict between Bates’s
various auto assignments for Seat, Hyundai, Audi and General Motors and
the Daimler-Chrysler business within Bozell.
Nevertheless, such a marriage would not only bolster Bates’s presence in
the US but extend Bozell’s limited global reach. There is even a
suggestion that True North has not named a successor for its
soon-to-retire chairman, Bruce Mason, because the job is being held open
Not that a Bates takeover would receive total approbation within True
North. ’I don’t think it’s a glitzy enough operation,’ an insider
’Saatchis would be a more interesting prospect because of its global
Bungey declares himself very content with Bates’s post-demerger
progress, pointing to 1998’s new-business gains, which included Seat,
Hyundai and Warner-Lambert. ’This year looks as if it’s going to be
exceptional,’ he says. Maybe more than he realises.
The case for To achieve its aim of becoming one of the handful of major
global players, True North needs the extra critical mass Bates would
This is especially so in Europe, where the True North-owned FCB is
rebuilding after its divorce from Publicis. Merging its European
operations along with those of Bates and Scholz & Friends would provide
a network led by a high-ranking Bates Dorland/FCB agency in London to
give it credibility.
Alternatively, True North could beef up its second-string network by
integrating Bates with Bozell. A deal might also offer a compromise
candidate to succeed Bruce Mason as head of True North in the guise of
Michael Bungey, the Bates chairman.
The case against Bates has no truly global clients apart from BAT. A
takeover of the Saatchi & Saatchi network might be a more positive
statement about True North’s ambition. Combining Bates with Bozell would
also pose significant conflict problems; Bates has assignments from
Seat, Hyundai, Audi and General Motors, while Bozell is aligned
worldwide with Daimler-Chrysler.
The case for Bates would be an easy assimilation for Grey. There are no
big client conflicts and the two networks already service BAT
It would give Grey much more clout in the UK as well as other geographic
advantages, particularly in South-east Asia where it has traditionally
The case against Ed Meyer, Grey’s worldwide chairman, is a cautious
businessman and would not get involved in a competitive bid for Bates
for fear of driving up the price of something he isn’t convinced would
be a wise purchase.
Also, merger could create problems with BAT. Soon to be enlarged through
its merger with Rothmans, the company may be less than happy with all
its business within a single network.
The case for Martin Sorrell, WPP’s chairman, could be eyeing Bates to
bolster one of his main networks - J. Walter Thompson or Ogilvy & Mather
- both of which have experienced problems of late. Also, with WPP
clients like Kraft General Foods, Nestle and Kellogg all threatening
further conflict headaches, a credible third-string network like Bates
could provide an answer. It might also be used to help create a genuine
third network through a merger with Conquest.
The case against WPP already has two viable networks. The problems of
integrating Bates with either one of them would be huge and neither has
much need of filling. Sorrell has not bought big for some time. Now,
with Cordiant’s institutional shareholders said to be holding out for
200p a share - 40 per cent more than the company’s closing price last
week - he will be even more reluctant to do so.