The continuing decline in Saatchi & Saatchi Co. stock price has caused some analysts and investors to second-guess the controversial ouster of its chairman, Maurice Saatchi.
"It's not clear to me that it was the best thing to do," said Alison Folino, senior research analyst, Smith Barney Inc., New York. "However, that's what happened."
"We're still seeing a lot of turmoil," she added.
Like many of her peers, she rates the stock high risk.
Analysts and shareholders noted the still uncertain turnaround of Saatchi & Saatchi faces new trouble over the potential loss of some major advertising accounts, the threatened competition of Mr. Saatchi's new firm, and the departure of several Saatchi & Saatchi executives to join him in his new venture.
"I think when you fire someone who is a master at manipulating the media you should expect fireworks, and that's what we've got," said Marc Joseph, a portfolio manager for two of several mutual funds at Templeton Worldwide, Fort Lauderdale, Fla., that own Saatchi & Saatchi stock.
Even those analysts who were interviewed and supported the change in top management remain reluctant to recommend the stock, despite its low price.
"Yes, I think that it (Mr. Saatchi's removal) was the only thing large shareholders with fiduciary responsibility could do," said James D. Dougherty, senior vice president-research, Dean Witter Reynolds Inc., New York. "Because of the extremely poor financial performance of the company, the chairman at some point has to be responsible."
But Mr. Dougherty still doesn't rate the stock a buy, although he acknowledged the stock's continuing drop has an attractiveness and even though he believes the fall was overdone.
"The sharp decline was another underscoring that the market isn't efficient every day," Mr. Dougherty said. "But I don't think we'd be likely to change our opinion (to rate the stock a buy) until the emotion cools down."
Activist shareholders who led the move to force Mr. Saatchi out, including Harris Associates Inc., Chicago, declined to comment on the poor market reception so far for the change. One of the activists, the State of Wisconsin Investment Board, which owned 11.06% of the stock, was said to be buying more shares. Officials at the Madison-based fund declined to return calls for comment.
Concern still is apparent over whether the activist shareholder revolt to remove Mr. Saatchi was the best move.
Templeton's Mr. Joseph said Mr. Saatchi had been turning around the global advertising agency.
"We were not part of the group led by David Herro (Harris' senior portfolio manager) that ousted Saatchi," Mr. Joseph said.
He declined, however, to be explicit about whether the ouster has proven to be a mistake, or whether the Templeton funds are buying or selling shares.
Since Mr. Saatchi was forced out, Ms. Folino noted, "The stock price has not improved, a reflection of the uncertainty coming out of London," where Saatchi & Saatchi is based. "Some executives are departing; some clients are thinking of exiting."
The stock closed in London at 119 pence Jan. 18, down from 1531/2 pence Dec. 15 the day before the board voted to dismiss Mr. Saatchi.
"I'm still neutral on" the stock "and haven't changed my mind" since Mr. Saatchi's ouster, said Ms. Folino, who said she has a 12-month investment horizon.
"Other people buying it now may have a different horizon."
"I'm more concern there might be more risk than possible upside" in the stock, she added.
Among Saatchi clients, for example, she noted Mars Inc. may put its account at the global advertising agency up for review. "Its $400 million in billings puts at risk my revenue projections, and that may alter my earnings forecast," she said. "But we don't know what's going to change."
But no one interviewed doubted Saatchi & Saatchi's ultimate survival as a global advertising agency.
"Absolutely it will survive," Ms. Folino said. "It has 11,000 employees, many more than left.
"I don't think this is the end of Saatchi & Saatchi," she added. "The name will change, but a lot of the faces will remain the same."
As for the rivalry of Mr. Saatchi's new advertising agency, she said: "Competition is always a threat. But I don't know what financial resources he has to service clients."
Dean Witter's Mr. Dougherty isn't concerned about any breakup of Saatchi & Saatchi or the impact of any potential loss of some of Saatchi's major clients to its financial well-being.
Advertising agencies "always lose clients," he said. "I don't think anything that happened so far will affect earnings."
He doubts Mr. Saatchi's new venture will hurt Saatchi & Saatchi. "In my opinion it will be no threat," Mr. Dougherty said. "The establishment of a full-service advertising agency that will have the wherewithal and finances to service worldwide accounts is a major undertaking. I would not bet on it.
"Such an agency would be hard-pressed to handle clients of such size and dispersion."
"A group of executives with the financial record they created over the last 10 years (at Saatchi & Saatchi) would have to pay a high price to get financing," he added.
Templeton's Mr. Joseph noted the former Saatchi chairman deserves some credit for putting his former company on a course to restore its financial health to be among the industry leaders.
"We're very positive about the company," he said.