Saatchi facing up to 'pounds 600m mistake'

SAATCHI & SAATCHI is considering writing off up to pounds 600m against the value of its advertising agencies worldwide in its 1992 results, due next month.

A final decision on the move will be taken at a board meeting in the next few days and could push Saatchi into a huge full-year loss.

The potential write-offs - which will not affect the group's cash position - have been prompted by a 'permanent diminution' in the value of Saatchi's agencies since they were bought for top prices at the height of the 1980s advertising boom.

The write-offs would amount to a clear admission by Saatchi that it vastly overpaid for several big acquisitions that subsequently pushed the group to the brink of financial collapse.

Insiders say the write-offs could wipe out all the mistakes of the past decade in one go, before Robert Louis-Dreyfus, chief executive, leaves the group next month. Mr Louis-Dreyfus, who is joining Adidas, the ailing sports goods maker, was brought in to turn Saatchi round four years ago.

A Saatchi spokesman confirmed yesterday that the write-offs were under consideration. 'The move is being considered to bring our accounts into line with realities that are already recognised by the stock market,' he said.

A significant part of the goodwill write-offs are thought to relate to Ted Bates, the US agency acquired for pounds 450m after a bitter takeover battle in 1986. The last earn-out payments on the deal were made last year.

Although the group wrote off the goodwill element of the 1980s acquisitions at the time, the value of those businesses has fallen because of the loss of important clients, managers and creative staff. In some cases the acquired agencies lost their identity when they were absorbed into Saatchi's two international networks.

There is also a widespread belief that the industry is unlikely to return to the double-digit growth rates experienced throughout the 1980s.

Excluding the write-offs, Saatchi's operating profits for last year are expected to be about pounds 14m.