Rebel threat to WPP takeover of Cordiant

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WPP's attempted £266m takeover of stricken advertising group Cordiant Communications appeared to be in jeopardy yesterday when a 10 per cent stake in Cordiant changed hands in a move which could block the deal.

It is thought the buyer was Active Value, the rebel shareholder which already owns nearly 16 per cent of Cordiant's shares. If it was behind the transaction it would give Active Value a large enough stake to block the scheme of arrangement under which WPP has proposed its deal. WPP needs 75 per cent of the shares to be voted in favour of its proposal in order for it to succeed.

Active Value declined to comment yesterday, but under the Takeover Panel Actany existing shareholder who buys or sells more shares must disclose their trades within 24 hours. WPP attempted to brush off the threat yesterday. "If the deal is blocked then the company goes into administration and shareholders get nothing," one adviser said. WPP insisted that its deal was best for shareholders as it gave them £10m, equivalent to 2.4p per share in WPP shares. WPP is also covering additional Cordiant liabilities of £100m on top of the previously disclosed £256m debts.

Advisers were surprised that the block of Cordiant shares had changed hands at around 3p per share, a significant premium to the WPP offer price.

"If they block the deal and Cordiant goes into administration they will have lost even more money," one said.

It is also understood that WPP has an agreement with Cordiant's lenders that if the deal is blocked by shareholders it will put the company into administration and buy the assets back.

Cordiant shares only returned from suspension yesterday and fell 1.88p to 2.87p.

It is possible that Active Value is trying to force WPP to either increase its offer or give into to its idea of re-financing the company rather than see it taken over.

But a source close to the talks said: "The client have said they want to see Cordiant end up as a subsidiary of a major group. They are saying it is not strong enough to remain independent."

WPP, which has managed to see off French rival Publicis in the battle for control of Cordiant, is planning to raise £100m via a placing of new shares to help fund the deal.

All creditors apart from Cerberus Capital Management have agreed to the terms. However, WPP claims Cerberus cannot block the deal as its loan notes carry no votes. A Cordiant shareholder meeting to approve the WPP deal is being planned for late July. The deal would give WPP control of the Bates Worldwide Advertising agency and a greater presence in the Far East where it has been keen to expand.

It would stand by commitments to sell £85m of assets including Financial Dynamics, the financial public relations agency, Scholz & Friends, the German ad agency and Pattersons, the Australian operation.

It is likely to sell its 25 per cent stake in Zenith Optimedia, the media buying division, to Publicis which owns the other 75 per cent. This would raise an additional £75m.

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