Cordiant forced into rights issue

Direct pressure from its banks to clear debts of 130m is forcing Cordiant to launch a rights issue, designed to raise at least 120m from existing shareholders. The terms of the issue will be unveiled within the next week, once the Cordiant board has met to finalise the details.

The group has always denied that it was under any bank pressure to repay the debt and in April renegotiated its debt repayment schedules. As a result repayment has been delayed until January 1997, but at an annual interest cost of 20m.

Now, David Herro, one of the group’s main shareholders has broken ranks and admitted that the banks have been exploiting Cordiant’s recent difficulties and forcing it into an untenable position.

Herro, of Harris Associates, controls almost ten per cent of Cordiant stock and is the man who precipitated the departure of Maurice Saatchi, and more than 350m of business, from the ad agency earlier this year.

“The problem has been that the banks have been so uncooperative in terms of Cordiant’s financial arrangements,” says Herro. “They have taken advantage of its instability. I would not have pushed

Cordiant to the extent that they have to clear all its bank debt – they have squeezed and squeezed.”

A rights issue has been on the cards since the arrival of Bob Seelert as chief executive in July (MW July 14).

Prior to his arrival, acting chairman Charlie Scott is believed to have had talks with US agency networks with a view to selling either Bates Worldwide or even Saatchi & Saatchi Advertising Worldwide. Speculation in the US – within the last month – have again linked Bates with a possible Omnicom deal.

“The board decided that selling one of the networks – which have good solid value – did not make any sense,” says Herro. “The time appears to be right to knock out the debt and bring to an end the restructuring of the last five or six years.”

Cordiant adviser Alex Sandberg confirmed that a rights issue was under consideration.

“Equity financing is under consideration but there is no commitment to when or how much the company will seek to raise because it has not yet been decided. The debt arrangements are rock solid, but there is a commercial incentive because of the cost of servicing the debt.”

The annual 20m interest payments should be seen in the context of the group’s pre-tax losses of 29.6m in the six months to April 30. That was before the loss of business, due to the resignation of Maurice Saatchi, had actually hit home. Scott predicted worse year end figures.

Cordiant now claims that all the lost billings have been replaced by accounts such as Bell Atlantic and Lucky Strike in the US.

But there is still concern about the impact on group revenues when M&C Saatchi is once more allowed to compete for Cordiant business in January.

Cordiant has already consulted its main creditors and the big five shareholders owning 45 per cent of the group’s stock, which include Harris Associates, the State of Wisconsin and Philips & Drew.

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