The fire sale of Cordiant Communications Group assets began in earnest last week, with the company confirming it intends to sell pan-European ad network Scholz & Friends, financial public relations firm Financial Dynamics International, as well as its 25% holding in Zenith Optimedia and a part of George Patterson Bates, Australia's biggest ad firm.
"By selling off these companies we'll be able to reinforce and grow our core business," said Cordiant CEO David Hearn.
A top Cordiant shareholder, Chicago money manager Harris Associates, has given up and sold its stock. Harris was the biggest shareholder with a 9.8% stake last June but cut that to 3% by December before unloading the rest.
David Herro, Harris' managing director-international equities, cited weak performance at flagship Bates, which has lost such accounts as Wendy's International. Among major holding companies, Cordiant had the worst performance in 2002 in wins, adding $207 million in new billings, and net new business (wins minus losses), losing $516 million in billings, according to William Blair & Co. (AA, Jan. 27). Mr. Herro said he has "no faith in Hearn."
Cordiant still must grapple with activist shareholders. The U.K.'s Active Value Fund Managers last year began buying shares and by November was top holder with an 11% stake.
Mr. Hearn told analysts, "The Bates Group accounted for 85% of our revenue base and its performance was relatively strong." Revenue in 2002 fell 11% to $849 million.
Committed to core
Bates Group comprises Bates Advertising, marketing services firm 141, branding/design group Fitch and specialist shop Healthworld. A skeptical Cordiant executive sees the disposal program as the first step towards "prettying the pig" for an eventual sale, though Cordiant claims it's committed to the core business.
Mr. Hearn described the series of divestitures, starting with a 77% stake in Scholz & Friends, worth an estimated $18 million. Agency executives plan a management buyout.
PR firm Financial Dynamics International, known as FD Morgen-Walke in the U.S., is also set to be sold to its management for an estimated $31.8 million. The company was originally acquired as part of the Lighthouse Global Network purchase in 2000, which cost Cordiant $592 million. Mr. Hearn said Cordiant would continue to hold a stake in Australian agency George Patterson Bates, even though its management is considering a $60 million buyout bid. Separately, Publicis Groupe is expected to pick up Cordiant's 25% stake in Zenith Optimedia by January 2004.
Numis Securities in London last week estimated Cordiant could get about $238 million from asset sales. Mr. Hearn said proceeds would go to pay down debt; average 2002 gross borrowings were about $350 million.
Cordiant is currently negotiating with an unnamed executive to be CEO of Bates North America.
Cordiant stock peaked at $32.25 in 2000. It hit a nadir of $1.95, or 94% off the peak, Feb. 19, the day before Mr. Hearn disclosed Cordiant's plans.
contributing: bradley johnson, dagmar mussey