A Back-to-Basics Breakup Plan for Cordiant

Nigel Stapleton has done it before, and he’ll do it again. As chairman of Uniq plc, he sold the struggling food company’s dairy brand to concentrate on its core convenience foods. At publishing giant Reed Elsevier, he sold its paper and packaging business to concentrate on its consumer publications.

And even before he officially joins Cordiant Communications Group March 1 as the replacement for chairman Charlie Scott, Stapleton is teaming with CEO David Hearn, who suceeded Michael Bungey in January, to offload what the company considers noncore assets.

“[Stapleton] sold brands and focused on the strengths of the company,” said Lorna Tilbian, an analyst with Numis Securities in London. “The hope is that he’ll do the same at Cordiant.”

Stapleton, 56, who was introduced to analysts and investors last Thursday, was unavailable for comment. But last week, CCG’s debt was estimated by Numis Securities to be $355 million, a figure Hearn, 47, acknowledged was “too much debt in this business on a sustainable basis.” The Numis report agreed that a breakup “could unlock substantial value.”

Accordingly, the beleaguered British holding company last week confirmed that it is looking to sell Financial Dynamics International and its 77 percent stake in Scholz & Friends. The announcement came two weeks after CCG acknowledged that it was exploring a sale of a majority stake in its Australian operations, including George Patterson Bates.

CCG is also open to unloading its 25 percent stake in media network Zenith Optimedia, perhaps before the end of the year, when a put option allows it to sell to 75 percent stakeholder Publicis Groupe. Of all the assets on the block, Zenith commands the highest price, $120 million, roughly equal to the value CCG will likely fetch for all of its other parts for sale, according to the Numis report.

“The key to making a dent in the debt is Zenith,” said Simon Lapthorne, an analyst with Old Mutual in London.

The steps will likely appease CCG’s principal lenders, as the company again renegotiates its banking covenants (see related story on page 17). “It could keep the banks at bay for the time being,” said Lapthorne. “It could [avoid] a nasty, expensive refinancing.”

Hearn said all of the businesses have received overtures from more than one party.

British financial public relations firm FD International, valued at about $32 million, is said to be close to a management buyout, as is Scholz & Friends. The German ad network, valued at $24 million, is being eyed by WPP Group, an admirer of its creative for clients such as Mercedes-Benz, sources said. Private equity company Pacific Equity Partners is the main bidder for the Aussie assets, valued at $65 million.

CCG will be left with Bates Group, the integrated-communications offering formed last September when the holding company combined Bates, marketing services network 141, branding and design group Fitch, and specialty network Healthworld. As a shadow of its former self, CCG will likely become a takeover target.

“My objective is to make the business a better and stronger offering,” Hearn told Adweek. “If that makes us a takeover target, that’s a side effect.”

“I wouldn’t rule out a D’Arcy type move,” said Old Mutual’s Lapthorne. “A company buys it, picks up clients and puts them into an existing network and disbands the Bates network. The issue is whether stripped down, CCG has anything to buy.”