Zenith Optimedia Group is 75% owned by Publicis Groupe and 25% owned by Cordiant, but analysts believe Cordiant will eventually have to sell its stake to pay down debt. A recent restructuring of its loan agreements means Cordiant's borrowing costs increased by about $8 million annually. Cordiant has a put option to sell the company's 25% stake in Zenith Optimedia Group to Publicis for about $105 million after Dec. 2003.
The Bates media move follows Cordiant's revelation late last month that it lost $399.7 million in 2001. In January, Bates USA West, Irvine, Calif., lost a key media account, Hyundai, and it's now in danger of losing Hyundai's dealer business as well. Bates USA lost Hyundai's creative account to Richards Group, Dallas, last week (see related story, P. 3).
Bates' diminished billings have made it impossible for the media operation to throw any weight around the market. "They are not a credible in-house force any longer," said an executive close to the situation.
Bill Whitehead, CEO, Bates North America, confirmed the arrangement. "Optimedia will give us more clout in the marketplace, increase our leverage in terms of dollars in the marketplace. This joint affiliation will bring about $3 billion into the marketplace." Optimedia's billings for 2001 were $2.57 billion, according to Advertising Age figures.
Bates' media accounts include Wendy's International, CVS Corp., Estee Lauder Co. and T. Rowe Price, which contribute the bulk of its $430 million in media billings.
The affiliation is just in North America. The arrangement is not characterized as an acquisition but as a sharing of key media buying and planning accounts and key employees, such as Bates media director Kevin Coyne. The two sides are still negotiating how revenue from a combined operation will be distributed.
In addition, Bates is hiring John Lazarus, former senior VP-executive director of national broadcast at True North Communications, as director of network relations and to act as a liaison with Optimedia. Mr. Whitehead said the agreement gives Bates "expanded target and daypart information, access to more consumer information, and we will share proprietary tools, because we have some stuff they don't have and they have some that we don't have. And it will put more emphasis on developing marketing packages with conglomerate media sales."
The sharing of accounts with Optimedia rather than with sibling Zenith appears to avoid some conflicts, such as between Bates' T. Rowe Price and Zenith's UBS Paine Webber. But an executive with knowledge of the deal said the alliance of Bates with Optimedia rather than with Zenith was made strictly on personnel compatibility. "The personal chemistry seems to work very well with the folks at Optimedia, and Mike Drexler's arrival seems to be the icing on the cake," the executive said. Mr. Drexler was recently named CEO of Optimedia USA.
With Optimedia's work on Bates Media's $430 million in media billings, Zenith Optimedia Group moves up from its current position on Advertising Age's list of top worldwide media specialists from No. 5 with billings of $18 billion to No. 4, edging out Omnicom Group's OMD. Optimedia itself will remain at No. 13 in the U.S., with billings close to $3 billion.
The affiliation will debut during this month's 2002-2003 upfront market. "We're doing the upfront together," Mr. Whitehead said. "This is almost like a date, or rather building a relationship, and the first date is us doing the upfront together."
contributing: laurel wentz