Cordiant's share price rose 5.5p to 135.5p after Charlie Scott, chairman, said that he planned to "unlock the potential" of the media services company by floating Saatchi & Saatchi and the Bates Group, its marketing business, in London and New York.
A third subsidiary, Zenith, would be independently managed but owned 50/50 by Bates and Saatchi. The Saatchi company will be run by Bob Seelert, Cordiant's chief executive.
Company insiders admit the demerger is a tacit acceptance that two bitter rival firms, brought together under one roof by the founding Saatchi brothers, cannot work together.
Mr Scott said the break-up would increase motivation among managers and open new areas of business,10 per cent in the case of Bates, which had been closed by clients' conflict policies.
He added: "We believe demerger more closely aligns the interests of management with shareholders. The initial response from our major investors has been enthusiastic without exception."
But rivals said the company had in effect hoisted a white flag over a business that had run out of ideas. One said: "We will all be putting the [acquisition] slide rule over these new companies."
Lorna Tilbian, media analyst with Panmure Gordon, agreed: "Bates will be a takeover target and Cordiant has realised that they can get more out of it that way than as part of the group or as a disposal."
This speculation was brushed aside by Mr Seelert, who said: "Frankly we do not see it that way. Both are robust companies are perfectly capable of standing on their own." But he admitted pre-emption rights over Zenith had not been decided.
An extraordinary general meeting will be called in October to consider formal approval to Cordiant's demerger proposals.
If it is given the go-ahead, shares in the two companies could be listed in December.
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