The owners of Bell Pottinger and Citigate Dewe Rogerson financial PR agencies have been in merger talks to form a player large enough to take on the market leader Brunswick.
Lord Bell's Chime Communications, the owner of Bell Pottinger, had been in detailed negotiations with Incepta, which has the Citigate brand, it emerged yesterday.
Although it is understood that discussions have broken down, there is speculation that a deal may be revived over the next few weeks.
Sir Martin Sorrell's WPP marketing group owns a 20 per cent stake in Chime, so it would have a big say in any deal. Incepta is far bigger than Chime, with a stock market value of £142m. Chime is worth £56m.
Both companies - which declined to comment - are chaired by Tory grandees. Lord Bell was Margaret Thatcher's favourite PR man, while Francis Maude, the chairman of Incepta, was Financial Secretary to the Treasury in the early 1990s.
Although the entire PR and marketing industry has suffered from savage cuts in client expenditure over the last three years, Chime was been hit particularly badly. It was forced into a refinancing deal in early 2003, after "very poor" trading saw it slump to a £42m loss. It also had to sell off 49 per cent of the previously high-flying advertising agency HHCL to WPP, incurring a loss on disposal of almost £8.3m.
In March this year, Chime raised £20m through a rights issue. By September, conditions had improved with Chime returning to profit for the first half. Lord Bell said at the time that "current level of business in hand gives us confidence about the results for the full year".
One senior PR industry source said yesterday that the merger "looked like a very defensive move".
"Is bigger necessarily better in this sector? I think both firms lack experience in the big-time transactions."
While Brunswick has more FTSE 100 clients than any other, the other leading players include Financial Dynamics, Finsbury (owned by WPP), Maitland and the newcomer Tulcan.
In financial PR, Bell Pottinger's clients include Marconi and Wireless Group. Citigate's customers include ITV, Carphone Warehouse and William Morrison. As well as financial PR, Chime has major interests in other areas of public relations, including the Good Relations business.
Incepta has a number of other marketing businesses, providing services such as direct mail at the less glamorous end of the industry.