WPP nears final hurdle

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WPP Group Chief Executive Martin Sorrell's $447 million proposal to acquire Bates owner Cordiant Communications amounts to less than the figure paid 17 years ago when Saatchi & Saatchi acquired Ted Bates Worldwide for $507 million.

While still facing a number of complications, the deal for the troubled Cordiant network is expected to close in early August and would give WPP a fifth global ad network as well as marketing-services specialist, 141 Worldwide, Healthworld and branding firm Fitch. Upon completion, it could make WPP the No. 2 holding company in revenue, behind Omnicom Group (see chart, P. 67).

But closing the deal could prove tricky. U.K. based investment firm Active Value, as of June 20, had built up a 23.9% stake in Cordiant that might influence the outcome. Active Value had no comment but was reportedly reviewing its options, which could include increasing its stake to force a bigger payout from WPP. That gamble could backfire if Active Value's moves kill the WPP deal. With no other offers, Cordiant could be forced into bankruptcy, and shareholders would lose a payout.

around the world

If Mr. Sorrell does pull it off, how he integrates the troubled Cordiant network will be key (see story, this page). While Mr. Sorrell says 141, Healthworld and Fitch will remain independent entities, it seems likely Bates will be eclipsed by its siblings, J. Walter Thompson, Young & Rubicam, Red Cell and Ogilvy & Mather, in most places around the world.

In a conference call June 19, Mr. Sorrell said: "In the U.S. it might make sense for Bates to move closer with Thompson, and maybe in the U.K. There is some sense in Red Cell working closely with Bates Europe. In Asia, Bates and Dentsu Young & Rubicam work closely together, though there are alternatives to that. Red Cell is in Asia as well." Dentsu Young & Rubicam is a joint venture between Japan's largest ad agency, Dentsu, and WPP's Young & Rubicam.

WPP's Cordiant bid lists key common clients: British American Tobacco, Estee Lauder, Heineken, Johnson & Johnson, Kraft Foods, Microsoft Corp., Nokia, Pfizer and Roche. One concern for WPP is how to deal with a conflict raised by Bates work for the Volkswagen SEAT brand in Europe, handled by Bates Spain. Red Cell network handles Fiat's Alfa Romeo brand.

which to keep?

Another big concern is which Bates U.S. clients WPP might hang on to. Pfizer, British American Tobacco and Cadbury-Schweppes are the main clients to fight over. Pfizer is shopping for agencies for three brands: Bextra, Zyrtec and Zoloft. Speculation is that its over-the-counter brands and the team that goes with them might end up at J. Walter Thompson.

While the sale of Cordiant's 77% stake in Scholz & Friends will continue along with the sale of the majority shareholding in George Patterson Bates, a question hangs over the negotiations surrounding Cordiant's 25% in Zenith Optimedia (see story, at right).

Publicis Groupe has an option to buy the balance of the shares it doesn't already own. According to the bid proposal, WPP is seeking to delist Cordiant shares to "ensure that the value of the Cordiant Group's interest in Zenith would be not less than" $126 million.

The sale of Cordiant PR firm Financial Dynamics to its management is continuing to be held up by Cerberus Capital Management, a U.S. hedge fund. Cerberus retains $132 million of Cordiant's $430 million debt and has played a big role in Cordiant's sale talks. Cerberus is still negotiating with WPP over that debt. An executive close to talks said Cerberus is eyeing Financial Dynamics, though executives close to Financial Dynamics last week claimed they are days away from closing their deal.

contributing: normandy madden

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