LIVE ISSUE/THE BATES NETWORK: Bates prepares to raise a ’for sale’ sign - The Cordiant shareholders won’t be in the dark much longer. John Tylee reports

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 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’

sale.



The shift appeared to be mirrored by Bates’s chairman, Michael

Bungey.



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

demerger.



’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

monsters.



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

network.



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

task.



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

countries.



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

grabs.



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

for Bungey.



Not that a Bates takeover would receive total approbation within True

North. ’I don’t think it’s a glitzy enough operation,’ an insider

confides.



’Saatchis would be a more interesting prospect because of its global

accounts.’



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.



Leader, p21



POSSIBLE BUYERS



TRUE NORTH



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

provide.



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.



GREY



The case for Bates would be an easy assimilation for Grey. There are no

big client conflicts and the two networks already service BAT

worldwide.



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

been weak.



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.



WPP



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.



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