Tales from the city

Letter of the Week

Rescue plans for Cordiant Communications are underway. The group is ready to announce two vital disposals: the £25m sale of Financial Dynamics and a £25.4m deal for its Australian business, George Patterson Bates. The need for such disposals became clear after the company breached its banking covenants last month. In addition, there are market reports that the fund management group UK Active Value is backing a proposal to inject £30m of new equity into Cordiant. The plan is reported to be led by Richard Wheatly, former chief executive officer of Jazz FM and Stephen Davidson, vice-chairman of investment bank West LB Panmure. Both would take top management positions as part of the deal.  Once the holding company for both the Saatchi & Saatchi and Bates Worldwide agency networks, Cordiant demerged its two principal businesses in 1997. Despite four years of rumours that the group was in talks to merge with one or other larger marketing group, Cordiant was still independent by mid-2002. By this time, the advertising downturn, heavy debts and a string of dramatic account losses in North America had begun to take their toll. Cordiant was forced to unveil a major restructuring later that year, designed to improve chances of a buyout. Unfortunately, it didn't stop a continuing stream of account losses. However, we still ranked Cordiant as the ninth ad organisation worldwide in 2002, with  revenues of $788m indicating that the underlying assets have significant value.

It seems certain that the holders of the group's debt, new equity investors and parts of the group's own management team will be the eventual buyers of the group's assets, not a larger advertising group.

Cordiant must stabilise its financial situation to avoid losing more clients and avoiding any future major client loses will help the group secure better financial terms.

Interestingly, the managers of the Financial Dynamics public relations' agency in London are reported to be negotiating the buy back of their former business from Cordiant. The price is said to be in the region of £25m, compared to the £45m the agency's executives received in 1999 when they sold Financial Dynamics to the US marketing company Lighthouse Holdings, Cordiant subsequently bought Lighthouse.

Many media entrepreneurs have been circling their former businesses, including Edgar Brofman Jr bidding for Universal Studios and the Henson family bidding for the rights to The Muppets. There are two main factors at work to explain the sudden interest in buying back assets: Firstly, at the height of the bubble, crazy money was being paid for businesses. Now that valuations are more realistic, entrepreneurs are buying back businesses that they hadn't really wanted to sell in the first place. Secondly, the values of many businesses are at their historic lows and, in some cases, the people who know the businesses best - those who started them in the first place - believe that the markets are putting too low a price on them. 

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