Investment firm Pacific Equity Partners (PEP) and Bates' Australian management finalized a long-awaited buyout from Cordiant valued at $60 million. The deal gives PEP a 70% stake in George Patterson Bates. Cordiant keeps 20% and the management team 10%.
Zenith stake included
The deal also includes Cordiant's
Cordiant, which brokered a deal with its lenders May 1, has until July 15 to complete the sales of three major marketing agency holdings: PR agency Financial Dynamics; ad agency Scholz & Friends; and George Patterson Bates. The company is looking to raise about $220 million to help pay off its debts.
Originally, the Australian buyout appeared to hinge on whether George Patterson Bates could hang on to its biggest remaining account, $40 million assignment for Optus Communications, in a tough review that was due to wrap up this month.
Surprise account move
In a surprise move, Australia's largest telecom company, Telstra, suddenly hired George Patterson Bates this week for its below-the-line advertising business. Rival Optus immediately appointed M&C Saatchi, one of the agencies pitching against Bates.
"The deal [for George Patterson Bates] is done," said an executive involved in the negotiations. "Telstra's appointment clearly makes it an attractive deal for everyone."
Industry observers suggest the surprise swap of telecom clients may have saved George Patterson Bates, Australia's largest agency, after a string of client loses, including Hyundai, and Zenith's loss only days ago of retailer Coles Myer's $90 million account to Interpublic Group of Cos.' Universal McCann. Optus generated about 10% of the company's overall revenues.
"They want to sell their business and they were about to lose Optus," observed a Sydney-based executive familiar with the Optus pitch. "They had to do something, so they scrambled around for a competitor and took the high ground [by saying the Telstra assignment was worth more], but I think they're in trouble."
Revenue not known
It's not clear whether the Telstra direct-marketing assignment will compensate for the lost Optus revenue, because the size of the business was not disclosed. But Telstra does spend up to $100 million on advertising annually, and it is currently reviewing its above-the-line business.
Telstra says George Patterson Bates will not take part in that pitch, but the agency's sudden defection to Telstra has unsettled its roster agencies -- Singleton Ogilvy & Mather, the Campaign Palace and Omnicom Group's Clemenger BBDO.