Cordiant shares collapse as Domecq pulls account

Cordiant has been forced into emergency refinancing talks with its banks after losing a key client, Allied Domecq, leading to a collapse in the remaining value of its shares.

The advertising, marketing and PR company, which has been under severe financial pressure for over a year, admitted that it is "actively investigating alternative strategic options" in addition to the disposal programme announced in February. This includes inviting bids for the group, which owns the Bates global advertising agency, or forming an alliance with another company.

The company warned that it may not be able to report its financial results for last year by the 1 May deadline, which means that trading in its shares will be suspended.

The latest crisis at Cordiant followed behind the scenes refinancing negotiations that had already begun. Cordiant had been forced to reopen talks with its lenders in recent weeks, after coming close to breaching covenants.

A deal was agreed on Friday last week, ready to be signed yesterday. However, the loss of the Allied Domecq account, which happened late on Friday, meant that the group would not meet the required level of interest cover from 2004 under the outline new banking arrangements. Cordiant was forced to re-open negotiations with the banks and it is unclear whether another deal can be thrashed out by Thursday, as required.

Cordiant said: "The direct impact of this client's [Allied Domecq] loss on revenue in 2003 will not be material, although the Group will incur associated restructuring costs in the current year. However, there will be a substantial impact on operating profit from 2004 onwards."

The company stressed however that the banks remained supportive and its disposal plans were "progressing well". Assets on the block include Financial Dynamics, the City PR agency. The company's shares dropped 65 per cent to close at just 9.75p, valuing the group at £40m. The company, worth some £1.5bn in 2000, has seen its shares fall from 103p in the last 12 months.

"Cordiant continues to have the support of a co-ordinating committee of its banks and noteholders, and is working constructively with its lenders to amend the financing terms," the group said.

The Allied Domecq business contributed £18m in 2002 or some 3.4 per cent of group revenue. Cordiant has already lost a number of other leading clients, including Hyundai and Wendy's and it is believed that one of the key remaining customers, BAT, has reduced the business it gives Cordiant.

Cordiant had worked on advertising campaigns for three of Allied Domecq's leading brands, Malibu (with the "seriously easy going" slogan), Ballentine's scotch and Tia Maria, a liqueur.

Allied Domecq declined to comment on the reasons for moving its business. However, industry sources said it was concerned about Cordiant's financial health and did not want to rely on it in the run up to Christmas.

ADS AND MINUSES

JANUARY 2002: Cordiant loses £140m Hyundai account.

AUGUST 2002: Loses the Wendy's account.

SEPTEMBER 2002: Michael Bungey announces he is to step down as chief executive.

FEBRUARY 2003: Cordiant confirms a partial break-up is under way.

APRIL 2003: Loses the Allied Domecq account.