MDC Cuts Cliff Freeman Free; Venerable Agency's Options Get Narrower

(MoneyWatch)  Cliff Freeman & Partners and its parent network, MDC Partners, have gone their separate ways, MediaPost reports. The move makes Freeman an independent shop as it faces the biggest crisis of its life -- the collapse of its client base. Freeman currently appears to be running on accounts worth about $15 million in billings.

Freeman's distant relationship with MDC (the shop wasn't noted on MDC's website) was reported on BNET back on Feb. 5.

The ending of the MDC relationship raises anew the question of whether Freeman will live or die.

In the short-term, the return of MDC's 20 percent ownership stake to Freeman will give Freeman some cash to run on. By the same token, it will remove Freeman's ability to tap other MDC resources for its clients.

The unwinding of the MDC-Freeman deal is, potentially, a signal that Freeman is not making any net profit or cashflow. MDC is a publicly traded company that must return cash to its shareholders; why would it sever its ties with Freeman if that cash was forthcoming?

In addition, it seems probable that MDC believes Freeman is not likely to return cash to its shareholders in the near or medium term. Giving Freeman its stake back indicates that MDC feels it will be cheaper to lose that money now than to wait for a Freeman recovery. (UPDATE: It's not clear whether MDC paid to leave Freeman or whether Freeman bought back MDC's stake. See this post for details.) The departure also precludes a charitable rescue by Crispin Porter & Bogusky, which BNET speculated was one option here.

What are the potential scenarios now for Freeman?

1. Bankruptcy/Shuttering the shop.
2. Landing a big new client.
3. A (very cheap) sale of the shop to a different network.

In the absence of other information, Scenario 1 looks most likely.

The emergence of Scenario 2 would be interesting for two reasons: a) it would make Cliff Freeman look like a genius and b) It would raise questions about whether MDC knew Freeman was about to land a new client when they ended their agreement.

Scenario 3 offers a relatively graceful way out. It's not too difficult to see "Funny TV specialist" Freeman as part of Omnicom's BBDO/DDB/TBWA assets. Of course, if Freeman is really in the trouble it appears to be in, it will be cheaper for an acquiring network to let Freeman die than to buy its remaining clients (Saudi Arabia Airlines, Valley National Bank, Quamut and Invisible Children).

• See BNET's previous coverage of Cliff Freeman and Partners:
• Cliff Freeman Loses Quiznos; Agency Survival in Question
• Cliff Freeman in Freefall? Client Gains Don't Seem Big Enough to Cover Lost Revenue
• Cliff Freeman Names New CEO; Turmoil as Usual