Publicis and WPP battle for Cordiant

WPP Group and Publicis Groupe are locked in a final battle for control of deeply troubled Cordiant Communications. A resolution is expected by next Monday at the latest.

A third serious contender, Grey – which had links with US hedge fund Cerberus Capital Management – is thought to have withdrawn after inspecting Cordiant’s books. However, both remaining suitors would need to come to terms with Cerberus, which owns about &£45m of Cordiant’s estimated &£250m debt.

A resolution of the debt crisis is central to Cordiant’s fate, say sources close to the issue. Lenders, led by banks such as HSBC, are seeking either repayment of the loans or a debt-for-equity swap. A swap would severely squeeze existing shareholders. However, shareholders are in a weak bargaining position. In the event of receivership, lenders would have prior call on Cordiant assets.

One solution being touted is a so-called “pre-packaged administration”. Under this, banks would put the company into temporary administration before passing it to a pre-arranged buyer for a high percentage of the debt, perhaps &£200m. The main disadvantage of this is that insolvency proceedings could trigger get-out clauses for clients and possibly senior executives, on which the value of Cordiant depends.

Another issue likely to influence the outcome is client compatibility. While WPP is on the roster of Cordiant’s biggest client, BAT, Publicis is not. BAT is thought to account for about eight per cent of Cordiant’s revenue.

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