NEW YORK -- Cordiant Communications Group's first-half revenue decline of nearly 10 percent revealed how fast its financial situation is deteriorating, even before the loss of Bates Advertising's Hyundai and Wendy's accounts impact the company's bottom line.
Given that, it seems increasingly certain that CCG will have to look at selling off assets to offset revenue losses. So Friday's announcement that the debt-strapped company is combining four key units into a single entity raised more questions than it answered.
"An orderly disposal of assets is the smartest way out for them," remarked one executive. "So why integrate these assets and reduce their value? It acts like a poison pill to any interested buyer."
"It's a timing thing. I don't think anyone would buy them or their assets at this point," said media analyst Tom Dietz of Merrill Lynch in London.
CCG said it plans to unite Bates Advertising, marketing-services network 141, branding and design group Fitch and Healthworld. (Unaffected by the move is FD International, set up two months ago to house CCG's financial-PR operations.)
Steering the effort will be Bates Worldwide CEO David Hearn. After five months on the job, Hearn has been tapped to succeed Michael Bungey, CCG's 62-year-old CEO, who is stepping down in March. "I always said I wanted to go by the end of 2003. I'm going to work closely with David in implementing this plan," said Bungey. "By the end of the first quarter, we should be well on our way, so that seems like a reasonable time to go."
With Hearn moving up, the job of CEO for Bates Worldwide will be open. In addition, the North American CEO post also remains open. Bungey said filling out the upper-management ranks will be Hearn's responsibility.
The changes and succession plan come as CCG revenue dropped nearly 10 percent to $400 million in the first half. Operating profits fell by 31 percent to $26 million, while operating expenses were down 8 percent to $373 million. As a result of the integration and other cost-cutting efforts, CCG anticipates operating expenses of about $42 million in the second half to achieve annualized cost savings of $34 million.
It has been an open secret in London financial circles that shareholder pressure for management changes came from Active Value Fund Managers, which owns a 9 percent stake in CCG. Some wonder whether Active Value will now push for dissolving the new integrated unit.