Inside Wall Street
SAATCHI: IT'S STILL CREATING SPARKS
Big multibillion-dollar public pension funds don't usually buy penny stocks. But the $20 billion State of Wisconsin Investment Board is the largest shareholder of Saatchi & Saatchi PLC, the British-based global advertising giant. The pension fund accumulated some 8.2% of the company over the past 15 months. Saatchi American depository receipts trade on the Big Board for $1.13
The ADRs were as high as 34 five years ago when brothers Maurice and Charles Saatchi were on their worldwide acquisition binge. But the Saatchis' fortunes started to slide in the late 1980s when they tried to diversify into management consulting. That, coupled with heavy debt and recession in the U.S. and Britain, left the company with huge losses. A year ago, Saatchi recapitalized, alleviating some of the debt burden but increasing the number of shares nearly tenfold, to 1.5 billion. Each ADR is backed by three ordinary shares.
David Herro, an international portfolio manager on the Wisconsin board, says Saatchi's restructuring--including shedding about one-third of the work force--puts the company in a good position to profit from economic recoveries in the U.S. and Britain. He says few people expect Saatchi to make money over the next year, so even a tiny profit will catch investors by surprise. Herro is projecting only an $18 million increase in revenues for 1992, to $1.35 billion. But the cost-cutting, he thinks, could help the company boost its aftertax profit margin from 6% to 7% and allow the company to earn about 5 per ADR.
Despite its woes, Saatchi hasn't lost its creative spark. "It's still a great brand name in the global advertising industry," says Adrian Day of the investment newsletter that bears his name. Another plus is the Conservatives' victory in the recent British elections. Saatchi was the Tories' main agency, and the win could lead to more government work.
Though Wisconsin is the largest holder, some other institutions have taken big stakes. Fidelity Investments holds 3.1%; Boston money-manager Grantham Mayo Van Otterloo, which follows a contrarian investment strategy, has 3.2%.JEFFREY M. LADERMAN