Cordiant Communications’ Bates agency could soon become a dominant player in South Korea’s $5.3bn (£3.3bn) advertising market. This remarkable opportunity comes about thanks to government pressures on Hyundai, one of Korea’s leading industrial groups to divest non-core assets, which includes Diamond Advertising, the country’s third-ranked agency. In 1998, Diamond billed $260m (£162.5m) and had an eight per cent share of TV and radio advertising expenditures. Diamond executives expect Cordiant to pay about $100m (£62m) for 80 per cent of the agency.
Hyundai is not alone in feeling government pressures. Samsung is divesting its loss-making auto manufacturing subsidiary while Daewoo Corp is being broken up and sold piecemeal, with consequences for agencies in each case.
Samsung’s Cheil Communications, Korea’s largest agency, is exploring new foreign partnerships following Cheil Bozell’s closure, a separate joint venture agency that shut down when Bozell’s limited business in Korea moved to FCB’s Seoul agency.
Samsung is disinclined to sell equity in Cheil Communications itself and foreign agency groups are unenthusiastic about forming a separate joint venture with Cheil to which the Koreans would contribute little business, so scant progress is being made.
Daewoo’s dissolution brings added problems to Korad Advertising, which handles domestic Daewoo business. Korad narrowly escaped bankruptcy when its parent, Haitai Corp, folded last year and left the agency with debts of more than $30m (£18.8m).
Cordiant has operated a joint venture with Diamond in Seoul for years. Assuming the deal goes through, there will be much work to be done to transform Diamond’s financial health. In 1998, the agency lost more than $12m (£7.5m). Forecasts for this year suggest the agency could make $12m (£7.5m) provided it disposes of surplus real estate. Even so, Diamond could still be carrying debt of at least $20m (£12.5m), according to Korean sources. Within the past year, talks with at least two other holding companies failed to reach a conclusion because of differing views about how Diamond debt should be handled.
Part of the prize will be Hyundai’s ad account in Korea, which provides most of Diamond’s revenues. Executives in Seoul say the draft agreement between Hyundai and Cordiant stipulates this will remain with the agency for at least five years.
The proposed acquisition would provide an opportunity for Zenith Media to open in Korea. This is good news for Saatchi & Saatchi since the Bates operation in Korea looks after its interests, based on an agreement that pre-dates the Cordiant demerger. And since Hyundai is energetically trying to develop business in North Korea, Bates could also find itself in Pyongyang.
But despite press leaks from Diamond, Cordiant resolutely says “no comment” when asked about this acquisition. Once again, there could be financial issues to derail the plans.