The sale of Havas’ outdoor media business takes on more of the complexity of a Chinese puzzle with every week that goes by.
Dozens of potential bidders are considering the attraction of buying Havas Media Communications – Outdoor Advertising, which is estimated to be worth 360m. To complicate matters further, a number of its plum advertising contracts are coming up for renewal, which would significantly affect its value.
Havas’ outdoor advertising operation, part of French conglomerate Vivendi, includes a pan-European poster group incorporating Mills & Allen in the UK, and a worldwide airport advertising division that includes Sky Sites in the UK.
Within the latter division, a large chunk of the French business – the rights to sell advertising space in all the Paris airports – is up for renewal. But more importantly, the rights to sell space in seven British Airports Authority airports in the UK including Heathrow is up for renewal within two years, according to sources. It is understood BAA is considering taking the contract in-house. Without the key Heathrow contract, the whole transport operation looks less attractive.
One observer says: “It would make a big difference to the value of the whole business. Heathrow is the busiest airport in the world.”
Without the rights to sell advertising packages across groups of airports in one country or even a continent, the medium becomes less tempting to international advertisers such as The Economist or American Express.
At this stage it is estimated that 30 to 40 companies are running a slide-rule over Havas’ outdoor business. There are two front-runners from the outdoor business. The first is US-owned transport company TDI, which runs all bus advertising in the UK. The other is Clear Channel, another US operation, which bought UK poster contractor More Group last year. It is understood both put in pre-emptive bids some time ago that were rejected by Vivendi, which hopes to raise more money for the business through an auction.
Other media owners, such as TV companies Granada, Carlton and Bertelsmann, will take a close interest in the sale and serious bids are expected to come from at least one venture capitalist. These high risk, high reward investment companies, buoyed up with a slice of the nation’s pension funds, are becomingly increasingly visible in all sectors of the economy. In the media industry, for example, Apax Partners has backed Chris Evans’ Ginger Media. While Cinven and Kohlberg and Kravis Roberts & Co both have stakes in regional newspapers group Newsquest and Regional Independent Media, one of the companies trying to take control of Mirror Group, is backed by Candover.
Initial bids will be tabled by the end of March, with a shortlist of contenders drawn up by May. It should be clear who the new owner will be about a month later.
Unhappily for Havas, two US names in the frame – Outdoor Systems Incorporated and Chancellor Media – are themselves up for sale. One source says: “If TDI or Clear Channel get distracted by these potential US buys, it might rule them out as buyers here in Europe.”
There are those in the UK outdoor industry who firmly believe neither TDI nor Clear Channel will be allowed to buy Havas’ outdoor interests without selling M&A first. The acquisition would mean both companies would control more than 25 per cent of outdoor business, the maximum allowed in this country, triggering an Office of Fair Trading inquiry, which could, in turn, lead to a referral to the Monopolies and Mergers Commission.
Alternatively, the situation could be resolved if either party were to set up its own side deal to sell off M&A, possibly opening up the chance of a management buy-out.
Seven years ago, when M&A bought a company called Dolphin, the OFT took the view that one player could not be allowed to dominate any single outdoor for-mat, such as bus, six-sheet and large format. M&A was ruled to have an unhealthy strength in 48-sheet panels and was ordered to get rid of its new inventory.
But since then companies have held more than 25 per cent in other sectors of outdoor business and there are those who insist it will now be possible to control more than 25 per cent of the whole outdoor cake because the media industry has undergone huge structural change in recent years.
The argument is that outdoor should be defined as just one sector in the UK display advertising market, rather than as a market on its own. Taken like this the medium commands only six per cent of UK display advertising. And equilibrium between increasingly powerful contractors will be maintained because ranged against them are the big, centralised media buying agencies, with the power and sophistication to spend elsewhere if outdoor stops being cost-effective.
One observer says: “It doesn’t matter which sector you look at, whether it is client agencies, media buyers or media contractors, there is a much higher degree of concentration and consolidation now than in 1992, when the last OFT statement was made on M&A.”