The End Game Approaches for CCG

Allied Domecq departs, and vultures circle remaining clientsCordiant Communications Group, parent of Bates and 141 Worldwide, bought itself some time last week by reaching an eleventh-hour agreement with its principal lenders. But time is not on the side of the battered British holding company, under mounting pressure to complete its planned asset sales and stop the hemorrhaging of clients. After client Allied Domecq defected last week, CCG put the entire company on the block publicly, throwing into doubt the future of the 63-year-old Bates brand. Many predict New York-based Bates, best known for co-founder Rosser Reeves' Unique Selling Proposition, will be the next agency name to die, following on the heels of Bozell and D'Arcy. "It is likely it will be folded into another network if it is bought by [a holding company]," said Jesper Jensen, an analyst with WestLB Panmure in London. "History is not enough. When you lose half your clients in the U.S. and start slipping in the U.K., it's not enough." Bates, which operates 180 offices in 80 countries, saw an estimated worldwide revenue drop of 14 percent last year to $700 million.Following the loss of Allied Domecq's $30 million business, the vultures starting circling CCG's remaining global clients, Pfizer and British American Tobacco. "Every client has to be thinking what happens if it goes," said a source.Bates' client roster appears ripe for the picking in light of its precarious financial situation, a primary reason for Allied Domecq's departure. "Allied Domecq is symptomatic of the downward spiral in confidence both inside and outside the company," said Simon Lapthorne, an analyst with Old Mutual in London. The spirits purveyor, which accounted for 3.4 percent of CCG's revenue last year, said it has reached out to global agencies with above- and below-the-line resources. Publicis Groupe's Publicis Worldwide, Allied Domecq's other primary roster shop for spirits, appears to be a frontrunner for CCG's business on brands such as Tia Maria and Malibu, sources said.The BAT relationship, which analysts estimate comprises 6-8 percent of CCG's revenue, is already seen as tenuous—last month the marketer shifted the agency's Lucky Strike duties to Grey's G2 integrated-marketing unit. In the global realignment, CCG's 141 below-the-line unit, which continues to handle the $20 million Kool account, landed what some consider a consolation prize, BAT's duty-free work. Meanwhile, Pfizer, which represented about 8 percent of CCG's revenue and a significant portion of Bates' estimated $1.4 billion in U.S. billings last year, has several roster shops that would jump at the business. According to CMR, the pharmaceutical giant spent about $200 million in U.S. measured media in 2002 on the brands now at CCG, which include Dentyne, Rolaids and Zantac. When questioned about client relationships during a conference call last week, CCG chief executive David Hearn said, "Naturally, we have a 24-hour-a-day relationship with our clients. We deal with them every day. … For specific comments about their relationship with us, you should talk to them." Calls to Pfizer were not returned. "We'll watch with interest what happens to them," said a BAT rep, declining further comment. CCG said last Tuesday that it was "actively investigating alternative strategic options." The statement left many questioning why a competitor would take on CCG's estimated $318 million net debt rather than cherry-pick clients and key personnel. "Why buy all that debt and then … wind up in the same position as Cordiant is now, selling off assets to pay the debt down?" said one source. In fact, Omnicom CEO John Wren said during an earnings call last week that the holding company's "primary focus" is CCG's clients.Nonetheless, CCG said Wednesday that it had "received very preliminary approaches." Some analysts chalked that up to rivals' opportunistic looks at the company's operations. Still, bidders could buy it for a bargain; Jensen said CCG could go for as low as 8 pence a share.Analysts pegged Publicis Groupe as the most likely bidder, since it already has ties to CCG through a joint venture in Zenith Optimedia. CCG said Thursday it is set to exercise its option to sell its 25 percent stake in the media outfit to Publicis for $120 million in January. However, sources said Publicis could renegotiate the Zenith Optimedia deal to encompass all of CCG or its prized pieces. Publicis CEO Maurice Lévy said talks on Zenith Optimedia have not started. As to his interest in other CCG units, such as 141, he said Publicis is still focused on absorbing Bcom3. WPP Group, which earlier this year was said to be eyeing CCG's 77 percent stake in German network Scholz & Friends, is also sizing up CCG or its parts, sources said. Since the two companies are headquarted in the U.K., there would be fewer legal hurdles. One source said WPP chairman Martin Sorrell "is tough enough to carve up that company and get his money back." WPP could not be reached.Analysts said Omnicom could emerge as a suitor, pointing to its bid for financially troubled London shop GGT in the late '90s. Now that its lenders have extended CCG's financial agreements to July 15, analysts said the company will push to close one of its three previously announced asset sales. Up for sale are British financial public relations firm FD International, valued at about $32 million; Scholz & Friends, valued at $20 million; and a majority stake in its Australian operations, including George Patterson Bates, valued at $63 million. Because it reached an agreement in principle with its lenders, CCG was able to release preliminary 2002 results by the U.K. listing authority's May 1 deadline, saving its shares from suspension on the London stock exchange. CCG narrowed its full-year net losses to $370 million from $440 million, despite an 11 percent fall in revenue to $847 million.

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The End Game Approaches for CCG

Ann M. Mack

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Ann M. Mack