SELLING POINT: The End of Cordiant

SELLING POINT: The End of Cordiant - The spectacle of WPP's Martin Sorrell, Publicis' Maurice Levy and other more secretive prowlers picking over the bones of this once mighty group of agencies brings a melancholy end to a tumultuous adland story. What went wrong? John Tylee reports.

by John Tylee
Last Updated: 31 Aug 2010

The spectacle of WPP's Martin Sorrell, Publicis' Maurice Levy and other more secretive prowlers picking over the bones of this once mighty group of agencies brings a melancholy end to a tumultuous adland story. What went wrong? John Tylee reports.

The death of advertising giant Cordiant Communications earlier this summer just goes to show that the old adage 'the bigger they are, the harder they fall' remains as true of business today as it ever has been.

Conceived by the legendary Saatchi brothers as long ago as the 1980s, at its peak Cordiant was the world's fifth-largest advertising and marketing business. So when it finally keeled over in June, the almighty crash resounded far beyond the borders of adland.

What turned the once-mighty Cordiant into the communications sector's first major victim defies easy explanation. Those old failings egomania and hubris must take their share of the blame. So must a late-90s spending spree on acquisitions that now seem reckless and foolhardy. But most importantly, the group (which included ad agency Bates Worldwide, design business Fitch, and City PR agency Financial Dynamics) struggled to keep up with the true behemoths of the sector, such as Interpublic, Omnicom, Publicis Groupe and WPP. The very name of Cordiant's principal asset, Bates Worldwide, was a misnomer. In reality, it never succeeded in breaking out of a Catch-22 predicament in which it turned off many potential global clients because it had so few of them.

Sorrow within the global advertising community at the wasting away of a great agency brand and the boost to the industry's unemployment figures will be spiced by anger at payments of lottery-winner proportions to Cordiant's departing management - particularly its erstwhile chief executive Michael Bungey, a man who bet the farm and lost. Having spent pounds 700 million on acquisitions when there was only pounds 200 million in the shareholder funds account, he left Cordiant drowning in debt yet pocketed pounds 1.6 million on his way out. Of this, pounds 750,000 was compensation for loss of office - he quit three months ahead of his contracted schedule.

Cordiant's end is a sharp reminder of the ruthless grip of global recession on the advertising and marketing industries, and of how harshly financial profligacy is punished by a downturn. How did a company that three years ago was valued at pounds 1.3 billion and employing 9,000 people come to such an ignominious fate?

Little matter that, in the Bates Worldwide network, the group possessed one of the world's most well known agency brands with a proud heritage of famous work, while its invention of the Unique Selling Proposition (USP) assured it a permanent place in advertising history. Nor was it of any consequence that the Cordiant- owned agency in London, Bates UK, had as recently as 1988 been the county's third-largest, with a legacy reaching back almost 100 years. As Dorland Advertising, it gave British consumers some of the most memorable and long-running TV campaigns of all time: from the chiselled Old Spice surfer wiping out to the strains of Carmina Burana and the bead of 'Liquid Engineering' dribbling down the side of the Castrol GTX can, to the spectacular 'human house' spot for the Halifax building society.

The agency was a listed company well before its peers could assuage City fears about the industry's financial dilettantism. Even up to the time of its demise, it was still successfully churning out the hard-working 'You can do it if you B&Q it' films that have done much to sustain the DIY retailer's market leadership.

In the end, though, Cordiant's aggregation of blue-chip but expensively acquired operations proved burdensome in a consolidating communications world. It was unable to replicate the scale and resource of its giant rivals and was crippled by the debts of pounds 250 million it had run up in trying.

Following closely on the heels of its dramatic demise came the bad-tempered scrap over the corpse. It began as a straight head-to-head between rival bidders: Sir Martin Sorrell's WPP and French ad heavyweight Publicis Groupe, under Maurice Levy.

These two rivals couldn't have been more different. Sorrell, the bespectacled former Saatchi finance director whose clerkish demeanour conceals a merciless numbers man, built WPP from nothing into the world's second-largest communications group embracing such famous names as J Walter Thompson, Ogilvy & Mather and Young & Rubicam. Levy, the charismatic and well-groomed French charmer who grew Publicis out of its European heartland, via spectacular deals like the dollars 1.9 billion takeover of Saatchi & Saatchi. 'I may at times act in an opportunist way,' he once declared. 'But I will manage those opportunities.'

WPP appeared to come out on top when its final pounds 266 million bid was accepted by Cordiant's management in mid-June. But a gang of rebel investors soon threw a spanner in the works.

His deal valued Cordiant at only pounds 10 million, or 2.4p a share - to the chagrin of the group's largest shareholder, Active Value. Led by veteran activists Bryan Myerson and Julian Treger, Active Value upped its stake to 28.75%, denying Sorrell the 75% backing he needed to get his bid through on the nod. To add to his concerns, the late-disclosed purchase of a 2% stake in Cordiant early last month - later increased to 10.75% - by the mysterious Syrian chess billionairess and Publicis shareholder Nahed Ojjeh led to speculation about a concert-party arrangement.

By the time Cordiant was delisted on July 16, Sorrel's offer may have looked more appealing to beleaguered investors, as the shares closed down one-third at around the bid value of 2.4p.

Active Value's efforts to team up with Publicis and force a change of control were rebuffed by Levy, raising the possibility that the rebels could have used their 'nuclear option' to vote down the bid. This would have effectively forced Cordiant into administration and left shareholders without a penny.

This unseemly tussle over its worldy remains is a sad coda to the Cordiant story. That began, not in 1997 when it became a publicly quoted company in its own right, but in July 1981, when Charles and Maurice Saatchi bought Dorlands for more than pounds 7 million.

The brothers were iconoclasts, determined to shake up the cosy complacency of UK advertising. They personified the free-spending, entrepeneurial philosophy of Margaret Thatcher, for whom they devised the famous 'Labour isn't working' campaign in 1979, a slogan that helped propel Thatcher into power and turned them into household names in the process.

In Dorlands, the pair saw the chance not only to bolster their penetration of the UK market but to help resolve the growing problem of account conflict with Saatchi & Saachi. Founded in 1905, Dorlands had a chequered history.

Its worst period came in the early 1970s, when it was owned briefly by John Bentley's Barclay Securities, which stripped it of its property assets.

Dorlands became a grey, faceless place. The downbeat style of Eric Garrott, the London adman who beat Interpublic to buy out Bentley, didn't help, and it took the arrival of John Metcalf as chairman to inject some razzamatazz into dowdy Dorlands.

Metcalf was a flamboyant throwback to the '60s, a time when style was all-important and having a solid war record still counted for something.

Legend has it that his first act as head of Dorland's was to instal a fridge in his office to keep the Scotch at exactly the right temperature.

A former fighter pilot who saw action in WWII, he once dissuaded a client from reviewing its account after a long session with the chairman in which the pair reminisced about their RAF experiences. At his previous agency he was famous for setting up an early-warning system that allowed him to greet an approaching client with the sound of a popping champagne cork.

Dorlands grew steadily throughout the '70s, but by the end of the decade Garrott, seriously ill and with no obvious successor, decided to sell.

His fierce patriotism ruled out a deal with a US group and the agency moved under the Saatchis' wing.

The brothers were attracted to the agency by a distinctive and tightly controlled management system. It didn't always lead to spectacular new business wins but did allow Dorlands to creep silently into the list of the UK's top 10 agencies, earning it the sobriquet 'the agency that rose without trace'.

Dorlands' reluctance to mirror the trumpet-blowing style of many rivals reflected the personalty of its chief executive, Jack Rubins. While Metcalf had had his grand house near Berkeley Square, Rubins lived modestly in surburban Kenton, kept a low profile and never courted publicity. The agency's former media director, he introduced the kind of operational efficiencies more often associated with the media sector than a creative business.

Nevertheless, he had an all-consuming loyalty to the agency and its people.

He'd never worked anywhere else since joining Dorlands in the late 1940s and ruled it as a benevolent dictator, sometimes appearing gruff and intimidating to his senior staff but capable of unsung acts of kindness and compassion. 'The great thing about Jack,' one of his former account directors recalls, 'was that you could always take a problem to him and, unless it really was your fault, you would never be told off. And even if you had cocked it up, the client would never know because Jack would always take the responsibility.'

Rubins was an outspoken defender of Dorlands' independence, declaring shortly after the Saatchi takeover that the agency's autonomy was in no way compromised and boasting that neither Maurice nor Charles had even visited the Dorlands offices. It was to prove a dangerous self-delusion.

For the Saatchis, the deal was significant for two reasons. It provided a broader base from which to launch a US acquisition programme and established a template for future Saatchi takeover bids - pounds 1.5 million worth of the group's shares placed on the market with the cash passed on to the Dorlands management.

The Saatchi takeover also concided with the emergence of the man who would play a critical part in Cordiant's ultimate fate. Michael Bungey's agency was teetering on the brink of bankruptcy when Dorlands bought it in 1984. But the experience in no way diminished his thirst for success.

'Michael wants it so bad he can taste it,' a Dorlands senior manager remarked at the time.

With Rubins ever more preoccupied with securing the agency a place on the international stage, Bungey, his deputy, set about boosting his own influence. An incurable workaholic, he provided the agency's public face at client meetings where Rubins wasn't totally comfortable and he knew the value of personal relationships. The high-profile capture of the Woolworths account without a pitch was largely down to the strength of Bungey's friendship with the then chief executive, Malcolm Parkinson.

As Bungey consolidated his power base in London, the Saatchis were about to pull off their most spectacular coup, creating the world's largest agency group, but at the same time sowing the seeds of the financial crisis that would be their undoing.

Their target was Ted Bates, such a pillar of the US advertising establishment that the prospect of it falling into foreign ownership seemed inconceivable.

Founded in New York in 1940 by Theodore Bates and his copy chief, Rosser Reeves, the agency had given the industry the USP, a concept in which ads were made to focus exclusively on one selling point. The idea was perfectly encapsulated by Bates' memorable slogan for Mars' M&Ms confectionery - 'They melt in your mouth, not in your hand'.

Seventeen years on, this dollars 450 million deal looks the height of folly and, according to some onlookers, was the source of the 'loadsamoney' culture that became a significant factor in the collapse of Cordiant.

Nobody seemed to question the sense of the Saatchis paying such a staggering sum for Bates, at that time the highest price ever paid for an agency. Nor the fact that Bob Jacoby, the diminutive but ruthless cigar-chomping chief exec of Bates, walked away with a dollars 110 million pay-off.

But the agency's giant US-based multinational clients noticed, suddenly becoming uncomfortably aware that they were picking up the tab for such expensive habits. Their reaction was quick and terrible. Within a month of the sale, Bates lost millions of dollars of business as RJR Nabisco, Michelob, Warner-Lambert and McDonald's pulled out. Procter & Gamble, the world's biggest advertiser, vented its anger by stripping accounts worth dollars 85 million out of the Saatchi agency in New York.

By the summer of 1987, the Saatchis had recognised the need to bring some stability and order to their sprawling empire. Their choice for the task was Anthony Simonds-Gooding, the group's communications director. A thickset bear of a man not noted for his tact - 'Someone the English might once have sent to tame the Scots with public hangings' was one adman's unflattering description of him - the former Whitbread group managing director was intent on rationalisating the Saatchi group in the way that the brewing industry had been experiencing for a decade.

Rubins was the most highly placed casualty of all this. He was enraged by the Saatchi group plans to merge his international operation, DFS Dorland Worldwide, with Saatchi & Saatchi Compton in New York - even though it had neither the size nor stature to compete for international business - and angrily rejected a proposed affiliation arrangement allowing Dorlands to plug in to the Ted Bates international network.

And he was positively livid at the impending merger of Ted Bates with another of Saatchis' US subsidiaries, Backer & Spielvogel. The wealthy Carl Spielvogel, who could have given even Rubins lessons in autocracy, had been confirmed as the head of the combined agency, which he saw as his passport to Manhattan high society. 'I'm not reporting to Spielvogel or any other Vogel,' Rubins reportedly told Maurice Saatchi as he headed for the exit.

With Rubins gone from the stage, it was time for Bungey to strut his stuff. And his early success brought many plaudits. By 1988 he was heading the merged Dorlands and Ted Bates agency in London and on the verge of leading the combined operation into a period of success that was to last into the mid-90s.

Under its newly appointed executive creative director Andrew Cracknell, whose dry wit and addiction to cricket suggested an Oxbridge education rather than the four O-levels with which he left school, Bates Dorland began turning in serious profits. It was also boosting its reputation for creative work, which had been no more than workmanlike at best.

Till now, the agency had always been regarded as a safe haven for the likes of Woolworths and B&Q. Suddenly its work for Heinz was winning the Grand Prix at Cannes, while innovative TV commercials for Tennant's Pilsner were garnering acclaim. Even the loss of its pounds 20 million Rover account in highly controversial circumstances to a new agency set up by Kevin Morley, the car- maker's former MD, seemed not to hinder its relentless progress.

As the agency's star rose, so did Bungey's fortunes. Soon, he had become chairman of the Bates European network, marking himself out as Spielvogel's heir apparent. But hairline cracks on the Saatchi group's facade were opening up. It was forced to grapple with financial problems caused by more than dollars 1 billion of client defections connected to agency acquisitions, including Bates.

Moreover, there were disturbing signs that Bungey's efforts to build the Bates world network into a significant global player weren't going according to the script. The flagship New York agency had defied his best efforts to become the conduit for big-spending US-based multinationals to be fed into the network. To make matters worse, Bungey lost one of his closest allies when creative director Cracknell, frustrated at his failure to revitalise the creative product in New York and denied the chance to reclaim his old job in London, quit amid legal threats and much rancour.

When the Saatchi group kicked out Maurice Saatchi in February 1995, Mars vented its anger by ripping pounds 260 million of global business out of Bates, ending a relationship stretching back over four decades. The effect on Bates was almost terminal. In some offices, the confectionery-to-petfoods leviathan accounted for up to 80% of business and 150 staff were immediately axed. Even more significantly, Mars was the agency's key international client, the one account that supplied the tottery Bates Worldwide network with much needed global 'glue'. Its loss ensured that the group that was to evolve into Cordiant would perpetually lack global credibility.

Within two years, however, the Saatchi group, now rechristened Cordiant, had clawed itself back into financial health with pre-tax profits of pounds 41.8 million, setting the stage for a demerger of the Saatchi and Bates operations.

Cordiant became the adopted name of the new Bates holding company.

Senior managers at Bates, long frustrated at being seen as the Saatchi 'poor relations', were euphoric about the split. They had long raged over their failure to translate local business into global accounts because of conflict with their sister network. Now they could compete on equal terms. As one Bates chief put it: 'We won't be buggered around by Saatchis any more.'

It's a measure of what's happened since then that, six years on, Bates has fewer international accounts than almost any other network. Meanwhile, its optimism dissolved in a series of profit warnings, hundreds of job losses and a plunging share price.

Where it went wrong and who is to blame will be the subject of a lingering debate. What's certain is that, once demerged, Cordiant was faced with a stark choice: sell or rebuild. Bungey, now Cordiant's chief executive, chose the latter, initiating a voracious acquisition programme aimed at making the group less dependent on above-the-line advertising by diversifying into higher- margin and faster-growing marketing services.

It proved a fateful decision. Cordiant wasn't only entering the game at a very late stage - all its major rivals were much more advanced in their diversification programmes - but the advertising boom was at its height and all the worthwhile acquisition targets still available were commanding premium prices.

Nevertheless, Cordiant plunged on, forking out millions of dollars, piling up debt and closing deals with deferred payouts that threatened to drain cash for years to come. Perhaps its most astonishingly reckless deal was the dollars 540 million purchase of the Lighthouse Group, including the branding and design specialist Fitch, and Financial Dynamics, at the height of the dot.com boom in 2000. By last year, the value of all these acquisitions had plunged by more than two-thirds.

Whether Bungey was poorly advised or didn't listen is a moot point. Certainly, the calibre of those closest to him is questionable. 'A First Division management with Premier League aspirations' is one analyst's verdict.

Bungey believes that if he got stung, so did many others. 'Hindsight is a wonderful thing,' he laments.

Bates' waning fortunes only added to Cordiant's misery. Hyundai defected three years after Bungey paid dollars 100 million for 80% of the car manufacturer's Korean agency, Diamond Ad, to maintain its grip on the business. Wendy's International, the fast-food manufacturer, also took its dollars 200 million account elsewhere.

Even Bates' much vaunted USP formula was starting to show its age. 'Bates might just as well have been claiming that it made ads the right way up,' an ex-senior staffer recalls. 'It never managed to evolve the idea and give it new life.'

Under pressure from restless shareholders, Bungey's reputation for survival was looking precarious. To placate his detractors, he handed control of Bates to David Hearn. An ebullient, stocky six-footer, Hearn had once considered a career as a professional actor and could easily have strutted the boards as Falstaff. He would oversee Cordiant's final curtain call.

Hearn had never worked in an ad agency but had spent much of his career running complex businesses. He bought the Phileas Fogg name for United Biscuits and, as managing director of Del Monte Foods in the UK, was the driving force behind the 'Man from Del Monte' campaign. More recently, he had headed the Australian food manufacturer Goodman Fielder, where his efforts to create a cohesive management and company culture presaged the job that needed to be done at Bates.

By the turn of the year 2002/03, Hearn found himself in charge of the entire broken trainset - now with a debt burden of more than pounds 200 million - as Bungey, no longer able to withstand shareholder wrath, agreed to bow out.

Hearn opted to go for a leaner and fitter Cordiant, disposing of peripheral operations and focusing on core businesses - the Bates network, Fitch, 141 (its integrated marketing operation) and Healthworld (its healthcare specialist). For Sale boards were put on Financial Dynamics, George Patterson Bates (Australia's second-largest agency), and Scholz & Friends, the Germany-based network that had failed to expand beyond its domestic market. His strategy was to stop pretending that Cordiant could compete with its larger rivals and push the group's independent status. He tried to capitalise on what he saw as growing client disillusionment with the standard of service offered by the big communication groups.

But within weeks his carefully laid plans were in tatters. As if the loss of the Woolworths and Royal Mail flagship accounts from Bates UK wasn't bad enough, the drinks giant Allied Domecq delivered a mortal blow in May, dumping Cordiant from the roster.

Famous brands such as Beefeater gin, Canadian Club whisky and Stolichnaya vodka were switched to Publicis, depriving Cordiant of pounds 18 million in revenues and sending its shares into freefall.

The circling sharks smelled blood in the water, and moved in.

< 1905: Dorland Advertising founded, London. 1940: Ted Bates founded, New York. 1981: Saatchi & Saatchi buys Dorland for pounds 7m. 1984: Dorland buys agency Michael Bungey & Partners. 1986: Saatchi & Saatchi pays dollars 450m for the Ted Bates network. 1988: Dorland merges with Ted Bates in London. Michael Bungey becomes chairman and chief executive of Bates Dorland and Bates Europe. 1993: Bungey appointed president and COO of Bates Worldwide. He becomes CEO and chairman the following year. 1997: Bates Worldwide and Saatchi & Saatchi demerge to form separately listed companies. Bates group is renamed Cordiant, with Bungey as CEO. 2000: Cordiant buys US marketing giant Lighthouse Global Network, including branding specialist Fitch and PR firm Financial Dynamics, for pounds 392m; and US e-business consultancy MicroArts for pounds 63m. 2001: Cordiant announces 1,100 job-cuts and issues a series of profit warnings. 2002: Bungey steps down as chief executive of Cordiant. Bates boss David Hearn named as his successor. April 2003: Cordiant's shares collapse after Allied Domecq cancels its contract. Cordiant reveals it has received takeover approaches. May: Lenders agree to support Cordiant until mid-July. 1 June: WPP looks over Cordiant's books with a view to making a bid. 4 June: City raider Active Value, which has built up a 14% stake in Cordiant debt, supports a West LB-backed takeover attempt. 14-16 June: Publicis teams up with US hedge fund Cerberus Capital Management to bid pounds 250m, with plans to put the company into administration before splitting up the assets. WPP trumps the offer. Publicis drops out. 19 June: Sir Martin Sorrell announces the deal is done, with WPP paying pounds 266m for Cordiant, leaving shareholders with pounds 10m. 24 June: Active Value increases its stake in Cordiant to 28.75%, giving it the power to block WPP's offer single-handedly. 4 July: Syrian chess billionairess Nahed Ojjeh builds up a 10.75% stake in Cordiant 16 July: Cordiant makes its market swansong as its shares are delisted.

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