Analysts Say Moves Are an Effort to Lure Buyers

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NEW YORK ( -- In an effort to reinvent itself after posting the worst first-half 2002 results of any of the advertising holding companies -- and becoming a more enticing acquisition target -- Cordiant Communications Group announced last week a major reorganization plan and the departure by next March of CEO Michael Bungey.

Analysts, however, remain skeptical of the moves.

"I don't think they will win many more clients" as a result of this reorganization, said Thomas Deitz, vice president and media analyst, Merrill Lynch, London.

Mr. Bungey confirmed that David Hearn, chairman-CEO of Bates Worldwide, as his successor. Mr. Hearn, who only joined Cordiant in March, faces a huge challenge in integrating Bates Worldwide, marketing services network 141, branding and design group Fitch and specialist network Healthworld into one company as planned by the end of this year.

For sale?
"They are doing this to put themselves up for sale," Mr. Deitz said.

On Sept. 6, the company

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announced a net loss of $20.3 million. Cordiant's operating profits dropped 30% to $26.1 million in the first half and revenues declined 10.2%, to $399 million. Mr. Bungey denied a sale, but said he may close some companies in the restructuring.

David Herro, director of internal investments at Chicago-based Harris Associates LP, which owns 9.7% of Cordiant, described the restructuring as "probably the right thing to do" on paper.

"I applaud them for trying to truly deal with this issue of having a fully integrated marketing company," he said. "The promise of Bates Worldwide is still there. If they do it right, I think it is still viable."

Praised as a leader
That's the challenge, at a time ad spending shows little sign of recovery. Mr. Hearn, a Brit with a client background at Procter & Gamble Co. and the U.K.'s Smith's Crisps, is praised as a leader but criticized by some for execution. He was hired in 1995 in Sydney as chief executive of Goodman Fielder to revive the big, struggling Australian food company's profits and share price. After six years of Mr. Hearn's restructuring moves, GF's earnings and stock price still languished. In fact, coinciding with Mr. Hearn's departure in June 2001 to make way for yet another restructuring, GF announced a profit warning, soon followed by a loss of $42.9 million.

"Quite frankly, he didn't do enough soon enough hard enough," said an Australian analyst who didn't want to be named. "He probably talked more than his actions warranted but that being said, we're now seeing a reasonable amount of improvement at Goodman as a result of the changes he instigated."

Chris van Someren, president of global markets at Korn/Ferry International, who recruited Mr. Hearn to Cordiant, said that those close to Mr. Hearn spoke highly of his work at Goodman Fielder and claimed his experience there is relevant to his goals today. "David has been able to enact change at the same time he keeps a business going," Mr. Van Someren said.

At Cordiant, where he will be under pressure to achieve results more quickly than he has previously, Mr. Hearn inherits a jumble of assets. Bates Worldwide, for instance, has such a strong Australian operation, George Patterson Bates, that rivals have tried unsuccessfully to buy it.

Suffering mightily in U.S.
But Cordiant's revenue in North America, its largest region, fell by 19.3% in the first half of 2002. Bates USA has suffered mightily. In 2001, gross income fell by 8.5%. In 2002, client losses are about $678 million of the agency's $1.437 billion 2001 billings; the losses include Hyundai Motor America and Hyundai Motor America's dealers association and Wendy's International.

Bates' decline is particularly poignant. In 1987, Ted Bates Worldwide was the third-largest network worldwide. Now, Bates Worldwide ranks 15th.

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Paul McIntyre contributed to this report.

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