A leading Canadian investment house is calling changes in Cossette Communication Group’s relationship with its largest client, Bell Canada, a “worst-case scenario” and has downgraded expectations for the agency’s stock as a result.
In an advisory note issued earlier today, BMO Capital Markets said the new non-exclusive relationship between Cossette and Bell will likely lead to reviews on part or all of the account. “While it is impossible to predict the financial effect on Cossette, we believe one conclusion is relatively certain. The Bell account has been put in play and Cossette will have to defend its position,” stated the note written by Jeff Tkachuk.
Even if Cossette holds portions of the business, said BMO, it could face price concessions due to increased competition, will be prevented from pitching for new telecom work, and will find it difficult to get staffing levels right because of overall uncertainty about the relationship. BMO predicts Cossette will lose 25% of Bell’s business, representing $15 million in income for the agency this year. The figures are based on the estimated number of layoffs that came when the agency moved the Bell account from its Toronto office to Montreal. BMO further predicts another 25% in account revenue will leave the agency in 2009.
As a result, BMO downgraded Cossette’s stock rating and lowered its earnings per share estimate to 80 cents from 95 cents for 2008.
Bell, estimated by BMO to be 25% of Cossette’s gross income (approximately $60 million), previously used Cossette exclusively for all mass market, direct and interactive marketing nationwide.
In a press release issued late yesterday, Claude Lessard, chairman of the board and CEO of the Quebec-based agency network, said a new arrangement had been reached that “ends Cossette’s current exclusive partnership across all Bell business units.”
This was made in response to rumours that Bell had moved at least part of its business away from Cossette to Leo Burnett in Toronto. Bell denied these rumours were true and David Moore, president of Leo Burnett, would not comment.
Both Bell and Cossette declined to comment on the BMO forecast today, or provide further details of the new arrangement.
