Cordiant balks at letting Zenith go

Cordiant stands to lose a lot of media muscle if it sells its share of Zenith to Publicis. Luckily, it has the upper hand in any talks.

John Perriss, chairman of Zenith Worldwide, and Michael Bungey, chief executive of Cordiant Communications, must have felt a little put out when the Publicis and Saatchi & Saatchi deal was announced last week.

Not only was it kept secret from them, but since the deal was unveiled, it has been presumed that Zenith, jointly-owned by Saatchi and Cordiant, will fall into Publicis’ hands once Cordiant and the French-owned advertising network have agreed a price.

According to Bungey and Perriss, this is not quite the done deal everyone has made it out to be. Cordiant, which has no other media muscle, and makes quite a profit from

Zenith, is not so keen to sell its share.

“We’ve been looking to expand our footprint in media for some time,” says Bungey. “We have wanted a bigger and better Zenith for a while and we had talks about some options with Saatchi, but we won’t be looking to sell.”

Perriss says: “Bungey’s view is more ‘why should I [sell]?'”

Neither Zenith, nor its joint owner Cordiant, were party to the Publicis/Saatchi talks, which will see the French agency take over Saatchi in a deal worth £1.24bn.

While there have been no discussions yet, Publicis chief executive Maurice Levy and Bungey have said they will be sitting down for talks on the sale of Cordiant’s 50 per cent share of Zenith in the next few days. Levy says: “There are lots of possibilities of combinations, not just a full merger. We have to sit down with Bungey and Perriss and find what is the best combination.”

Perriss believes nothing is likely to be sorted out for at least a couple of months, and Bungey himself says they will take their time – after all, the Publicis/Saatchi deal will not be completed until September.

Not only would selling its share of Zenith to Publicis leave Cordiant without a media presence, it may also dent its annual profits.

Saatchi and Cordiant take 75 per cent of Zenith’s pre-tax profits which, although there are no specific figures available, is estimated at about £11m. The two companies then split that, with 63 per cent going to Saatchi and 37 per cent to Cordiant. If these assumptions are correct, this means Cordiant makes about £3m a year from its stake in Zenith.

Insiders also say that although Cordiant takes a thinner slice than Saatchi, Bungey will still require money for half of the agency’s value. Bungey can do this because the small print in the deal when Zenith was split between Cordiant and Saatchi in 1997 meant Cordiant owns exactly half of Zenith, although it takes less of its profits. Insiders say this was a result of Saatchi’s hurry to “divorce itself from Cordiant”.

Some analysts speculate that a new deal will result in Cordiant having a smaller share in the overall Optimedia/ Zenith media company. Bungey has indicated this would suit him.

If Cordiant were to sell, it might not be all bad for Zenith. Because of its joint-ownership, industry insiders say it has been starved of investment. But being wholly-owned by Publicis might not be in Zenith’s best interest either. As one media agency insider puts it: “Publicis has no track record in investing in media.”

Although they may come together for back office functions, most say the Optimedia and Zenith brands are unlikely to merge. The current climate of global mergers among companies may have changed the playing field, but conflicts are still an issue for many clients. As Perriss says: “As all media agencies move towards more media communications, conflict is becoming a bigger issue.”

It would also make little sense to merge the two, as a second media brand in any advertising group is becoming more desirable.

When WPP Group announced it was buying Young & Rubicam a few weeks ago, it also bought the Media Edge. It now intends to keep MindShare and the Media Edge separate to keep hold of and run any conflicting client business.

Optimedia and Zenith are also culturally very different. In some markets Optimedia is still considered Publicis’ media department. It was launched as a separate brand in 1992, and launched in the US only two months ago.

In comparison, Zenith was unbundled from Saatchi & Saatchi in the late Eighties and was the first of its kind. Sixty-nine per cent of its global revenue is third-party – not connected to Cordiant or Saatchi – and in the UK this figure is 93 per cent. The average across Europe is 78 per cent.

Zenith’s ownership has not been under the spotlight since it was demerged from Cordiant in 1997. It is arguably one of the strongest media brands, and although weak in some parts of Europe, has a strong global presence.

In the UK alone, a move to separate itself from Cordiant could leave Zenith in a delicate position with some of its clients. For instance, Cordiant-owned Bates and Zenith share the Kingfisher Group as a client. A move away from Cordiant could trigger a review.

Zenith’s clients wondering how their media agency will end up may draw some comfort from Perriss’ assurance that he will do everything not to change Zenith’s culture. “We will not be doing anything to alienate our clients,” he adds.

Whatever becomes of Zenith, Cordiant will be pleased with the recent turn of events. Whatever the outcome, it can only see its stake in Zenith flourish.

As Levy sits down with Bungey and Perriss over the next few days, he will be scratching his head wondering how Cordiant managed to manoeuvre itself into such a powerful position. He may also wonder how such a deal was ever agreed between Saatchi and Cordiant, leaving, as it does, Saatchi in such a weak position.

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