The AU$120 million question buzzing around the Australian advertising industry is: "Who will buy The Communications Group?"
At stake is more than simply control over the third-largest communications company, and the largest independent, in the country. The winning bidder is likely to be one of the two holding companies circling the group, and with TCG comes control of the lion's share of the Australian market.
Formerly Cordiant Communications, TCG was formed in 2003 after a management buyout when WPP took over Cordiant. Sir Martin Sorrell's holding company retained a 30 per cent share in the group, the remainder being split between the management (15 per cent) and the investment group Pacific Equity Partners (55 per cent).
PEP has initiated the flurry of interest around the group by announcing last month that it would accept offers for its 55 per cent share. TCG includes Australia's second-largest ad agency, the iconic George Patterson Partners. Affectionately known as Patts, the agency has a string of large, homegrown clients including Arnott's, the manufacturer of Wagon Wheels and Tim Tam biscuits, and Tourism Australia. TCG also includes the media agency Zenith, and a range of marketing and PR companies.
As a shareholder, WPP has made an early bid to register its interest. Omnicom has reciprocated with a bid of AU$80 million through its Australian agency, Clemenger BBDO, way below the AU$120 million value analysts place on the company.
A spokesperson for PEP coyly suggests there are more than these two holding companies involved in the "ongoing healthy discussions" with up to five other groups, a mix of global and Australian companies, and an initial public offering has not been ruled out.
Opinion on how the sale of TCG will change the advertising landscape in Australia is divided. Some call it "pivotal', others suggest TGC's folding into WPP or Omnicom will make little difference.
"Patts was a powerhouse; it's not a powerhouse anymore. The only company of any scale is Zenith. If it did make any fundamental difference to advertising, it would be because Zenith was sold into a larger media buying operation," one senior executive says.
The TCG management would clearly prefer to float rather than sell. The common belief, among the Australian press at least, is that George Patterson Partners will be merged with Young & Rubicam if WPP wins, or with Clemenger BBDO if Omnicom is successful.
Anonymous barbs delivered via the press are par for the course these days for the TCG camp, effectively gagged because of confidentiality agreements and legal requirements surrounding the possible initial public offer.
Ian Smith, the TCG chief executive, declined to comment on the details of the sale or on its likely outcome, saying a that lot of rumour and misinformation was doing the rounds.
"Overall, the tone of what is written is information supplied by competitors for the purpose of trying to disrupt the business ... occasionally, there's something interesting that someone has completely and utterly made up, which gives you a laugh," he says.
What TCG is pushing to potential investors is the strong platform provided by George Patterson Partners; Zenith's negotiating clout with media sellers; its diversified revenue and earnings base; its high percentage of revenue from local clients; and a strong management team that has restored the group's growth since 2003.
One barrier it faces is the perception that TCG is George Patterson Partners.
Smith explains that the flagship brand contributes only 23 per cent of TCG's bottom line.
"One of the major things people don't understand is the diversity and the underlying strength of the whole group," Smith says. "The vast majority of people think it is about Patts, with a couple of other things hanging off it. The reality is that it is a very broadly spread and strongly diversified group."
TCG's portfolio also includes 50 per cent of the high-volume/fast- turnaround shop hmaBlaze; the New Zealand agency Generator; and 50.1 per cent of the retail specialist IdeaWorks. Zenith (which will change its name at the end of the year after a dispute with Publicis Groupe, which owns the Zenith brand) was the second-largest media outfit in Australia in 2004, with billings of AU$570 million, up 3 per cent year on year.
Earlier this year, TCG bought 55 per cent of Media Puzzle, a start-up outdoor company. In marketing services, it owns 85 per cent of Professional Public Relations, Australia's largest PR company; the sales promotion company 20:20; and the design and branding company Underline.
"We're one of the top three in Australia in terms of the overall holding companies, along with STW Communications and Clemenger Communications.
We are the only independent and we have a 50-50 split between above and below the line," Smith says. Whether Sorrell, or someone else altogether, gets their hands on his company remains to be seen.
"Martin has taken a pretty active interest in the running of the business.
We've got no major beefs. I imagine he's pretty happy with the way things have gone," Smith says.
THE POTENTIAL BUYERS ... and where they stand in the Australian market WPP 30 per cent share in TCG Young & Rubicam Australia The Campaign Palace JWT Australia Ogilvy & Mather Australia MindShare Mediaedge:cia Grey Australia OMNICOM Clemenger BBDO DDB Australia Whybin\TBWA OMD Australia
This article was first published on Campaign