Cordiant three-way split adds fuel to takeover speculation

Cordiant will pay 15m, more than 30 per cent of last year’s group profits, to advisers executing the break-up of its empire.

The figure was revealed at a private briefing between the Cordiant executive committee and City analysts after Monday’s announcement that the group is demerging into three independently-owned companies.

The two advertising networks – Saatchi & Saatchi and Bates Worldwide, with clients which include Camelot and Heinz respectively – will be spun off as separate public companies, floated in London and New York, and valued at an estimated 350m to 400m each. They will jointly own the Cordiant-owned Zenith Media but Cordiant finance director Wendy Smith revealed at the analysts meeting that the “arm’s-length contracts” between the networks and Zenith will last just three years.

The Cordiant name will disappear, as will the 89 jobs at the holding company, providing an annual cost saving of less than 1m on 13m overheads. Most people will be absorbed into the two agency groups when they reach plc status in December, while Cordiant chairman Charlie Scott will become non-executive chairman of both agency groups for the next 12 months. After that, he will relinquish his role at one, although some sources believe he will withdraw completely.

But the break-up poses as many questions as it answers. It has heightened speculation that the restructure will lead to the sale of one or both of the networks in the next 12 months.

In the past three months it has been suggested that Bates will be sold, that its management was set to execute a management buyout, that Zenith was up for sale and that Bates was to be merged with Saatchi. Both Bozell Worldwide and Foote Cone & Belding have been touted as possible suitors.

Some sources claim the demerger has been agreed because the holding company could not actually find a buyer for Bates and that its new 50 per cent stake in Zenith is seen as a “sweetener” to boost the prospects of selling the network. Others suggest that Zenith will be fattened up to be disposed of later by the two networks. This is denied by Cordiant chief executive Bob Seelert. “There has never been any discussion about selling either network,” he says. “For a holding company to make deals to sell above the heads of the operating companies would be bad business – and management buyouts would not deliver any shareholder value.”

At the analysts meeting last Monday, finance director Wendy Smith said: “We will not speculate on other options considered”, but Seelert admits that both a sale, and the merger of the two networks, were considered as options for the group restructure by Scott, Smith and Seelert last October.

Seelert, who will become Saatchi chief executive officer as a result of the restructure, claims these options were immediately dismissed. The board investigated the legality of the demerger idea.

Seelert says the new joint owners of Zenith, which receives 50 per cent of its worldwide revenue from the Cordiant group, will seek other agency partners to invest in it.

Zenith is a priority for its owners. It wants to strengthen the network in Europe, Latin America and parts of Europe. But the primary reason given for the demerger is to allow Bates to compete for client work denied it because some Saatchi clients insist on a groupwide “no client conflict” policy. Cordiant claims this will open up ten per cent of the world advertising market to Bates, but the figure is ridiculed by other industry sources.

The only client believed to insist on this clause is P&G. Theoretically, the end of the ownership link would allow Bates to pitch for Unilever business, for example. “The association with Saatchi prevented Bates from going after toiletries because Saatchi has P&G,” says a Bates UK source. “Now we can.”

But there is widespread scepticism about the deal. “The only people it (the demerger) is good for are the shareholders,” says one former Saatchi executive. “There is little difference in the way the networks will be run and we will not see any real change unless someone comes along and buys one of them.”