Cordiant, the world's sixth-largest advertising organization, unveiled on April 21 a plan to demerge Saatchi & Saatchi Advertising Worldwide, Bates Worldwide and Zenith Media Worldwide into three independently managed businesses.
Saatchi & Saatchi and Bates would each be listed on the New York and London stock exchanges, while Zenith would be equally owned by Saatchi & Saatchi and Bates. The proposal will be submitted for shareholder approval later this year.
A demerger would free the agencies from some of their client's strict client-conflict restrictions. Since Saatchi & Saatchi is on Procter & Gamble Co.'s roster, Bates is not allowed to pitch for package-goods accounts from rivals such as Unilever.
According to a Cordiant statement on Monday, separating the networks would allow them to pursue new business from some of the world's most significant advertisers.
"In particular, management estimates that this will open up to Bates over 10% of the world advertising market. It will also allow opportunities for alliances and acquisitions," the statement said.
The proposed structure would also give Zenith greater autonomy so that it could develop a greater proportion of revenues from outside the Saatchi & Saatchi and Bates networks.
Cordiant says the new decentralized structure will allow the agencies to respond more quickly to client needs. According to a statement by the Cordiant board: "Communication lines will be shortened between those who are closest to clients and senior management. Each network will have responsibility for controlling their own costs and working capital."
Cordiant also hopes that a demerger will motivate management and staff at each network and make them feel more directly accountable and responsible for the performance of their networks. The hope is that this will lead to a higher share price in the two new agencies.
"Having restored stability to the group, we could consider how best to further shareholder value," said Cordiant Chief Executive Bob Seelert. "This strategy is driven by the will to serve our clients better; demerger will energize the operators in the networks and unlock the considerable potential residing in our businesses. The reaction from our major clients around the world has been enthusiastically supportive and our staff are very excited by the opportunities this move affords them."
The Saatchi & Saatchi group had a trading profit in 1996 of $37.6 million on revenue of $576 million. It's largest component is Saatchi & Saatchi Advertising Worldwide, a network operating in 90 countries. It earns around 50% of its revenues from multinational clients such as Du Pont Co., General Mills, Hewlett-Packard Co., Johnson & Johnson, Eastman Kodak Co., Procter & Gamble and Toyota Motor Sales. New business wins include Delta Air Lines and Schweppes beverages.
The Saatchi & Saatchi group also includes corporate communications and interactive agency Siegel & Gale and specialist services arm Facilities Group. Bob Seelert will become chief executive of the Saatchi & Saatchi group.
The Bates group had a trading profit in 1996 of $39.2 million on revenue of $600 million. The largest component of the new Bates group will be the ad network Bates Worldwide, which operates in 75 countries for multinationals such as Avis Rent a Car Systems, B.A.T Industries, Hyundai Group, Wendy's International and Warner-Lambert Co.
The new Bates group will also include the public relations agency Rowland Group, market research company National Research Group and conference group HPICM. Michael Bungey will be the chief executive officer of the Bates Group.
Media planning and buying network Zenith Media Worldwide will be managed as an independent company carrying out business for its own clients and with Saatchi & Saatchi and Bates on "arm's length terms." Zenith operates in 22 countries and its clients include B.A.T, Bell Atlantic, BMW, Darden Restaurants, U.K. building society Halifax, U.K. retailer Kingfisher and Kraft Jacobs Suchard. John Perriss will be chief executive officer of Zenith.
"We believe demerger more closely aligns the interests of management with shareholders. The initial response from our major investors has been enthusiastic without exception." says Cordiant Chairman Charles Scott.
Mr. Scott will be the non-executive chairman of both the Saatchi & Saatchi and Bates group to facilitate the demerger process and provide a continuity of management during a one year transition period. After this period he expect to relinquish responsibilities from one of the groups.
Copyright April 1997, Crain Communications Inc.