Whither Cyrk-Simon?
Exploration of `strategic alternatives’ could mean break-up of company.
Rumors of a sale, break-up, or leveraged buyout were swirling around Cyrk, Inc. last month, although the company kept mum about its plans for the future.
Gloucester, MA-based Cyrk in July announced that it had retained Donaldson, Lufkin & Jenrette, New York City, to help it “explore strategic alternatives.” The news came a few weeks before the release of disappointing financial results that included a 15-percent drop in net sales to $401.6 million and a $10.2 million net loss for the first half of 2000.
Cyrk executives haven’t said exactly what alternatives they are exploring, although Wall Street analysts and company investors are expecting a sale of all or part of the company or possibly a management-led buyout.
A release announcing the hiring of DLJ stated that Cyrk has been challenged in recent years by a “complex business model that has at its core autonomous business units, each of which have different economic models and risk profiles. Separately, these business units may reflect a significantly different value and represent unique opportunities in their respective markets.”
That statement would suggest a break-up of the current company, which consists primarily of the Cyrk promotional products operation in Gloucester, the Los Angeles-based Simon Marketing promotion agency (home of the McDonald’s account), and a newly formed Internet division consisting of a handful of recent acquisitions (May PROMO).
The decline in first-half revenues was the result of a significant reduction in its business with Beanie Babies-maker Ty, Inc. and a drop in billings from the flagship McDonald’s account (the latter of which represented 61 percent of total sales in ’99). An agreement to handle administrative services for the fast feeder’s promotions in Europe ended last December, which will leave Cyrk with a $150 million revenue shortfall in 2000.
Cyrk’s 1997 acquisition of Simon made the company – already a significant industry player through its management of the Marlboro Gear and Pepsi Stuff continuity programs – one of the largest agencies in the promotion industry. The company was named PROMO’s Agency of the Year in 1998, and ranked sixth in this year’s PROMO 100 with $988.8 million in sales and $172.3 million in gross profit for 1999 – when it also posted its best earnings in five years. But is has never been able to shake off a reliance on major accounts – first with PepsiCo and Marlboro parent Philip Morris, and more recently with McDonald’s and Ty.
And the company’s market value has never lived up to expectations. Although Cyrk’s stock price hovered near the $40 mark for a few years in the mid-1990s (the company went public in 1993), it has rarely broken $15 per share since, and on Sept. 8 the price stood at $4.50. “We believe the current market valuation does not accurately reflect Cyrk’s capabilities, unique industry position, and leading reputation,” co-ceo Patrick Brady said in a recent statement.
Last fall, grocery consolidator Yucaipa Companies – which also owns a stake in McDonald’s’ largest food supplier – invested $25 million in Cyrk, promising to help the company grow. In May, Cyrk said it would eliminate 140 employees (about 12 percent of its workforce) in a merger of its corporate promotions and custom product and licensing units.
Boston-based sports marketing shop Woolf Associates in August launched a motorsports subsidiary to handle representation and marketing of racing teams, drivers, racetracks, tracks, and corporate sponsors.
The new Woolf Motor Sports group is being headed up by agency veteran Paul Lufkin.
