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WPP's debt gambit captures Cordiant

Advisers: UBS (Cordiant); Goldman Sachs (WPP)
Deal size: £276 million
Date announced: August 1 2003

Buying debt to acquire a business might be slightly more common in Europe these days, but advertising agency WPP's use of such a strategy to acquire rival Cordiant Communications was an unusually tough deal.

The story begins at the end of April. Cordiant had been working with its creditors to restructure its debt, and was close to a deal. It had worked out a programme of disposals to reduce debt and agreed to raise new equity to refinance the business. A common steering committee of bank lenders and bondholders included RBS, HSBC, Bank of New York and, from the noteholders, Prudential.

Then, on April 28, drinks company Allied Domecq dropped its advertising agency, Bates, a Cordiant subsidiary. That threw the recent negotiations into doubt. "The creditors and the management believed that, with the disposal programme and rights issue, it could all stack up," says Allen & Overy finance partner Robin Harvey, one of the senior lenders' legal advisers. "Until Cordiant lost Allied Domecq. Without that account, the management's view was that Cordiant couldn't continue as an independent business."

The decision hit Cordiant's debt, which was already being sold down.

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