Will Pouzilhac’s Grey cloud clear?

The middle is now a very uncomfortable place indeed in marketing services, and no more so than for sixth-placed Havas, as it surveys the wreckage caused by an abortive bid for Grey Global.

For chairman and chief executive Alain de Pouzilhac it represents a wounding personal humiliation: a 3:0 defeat at the hands of his Anglo-Saxon nemesis, Sir Martin Sorrell, chief executive of WPP Group. Looking back, Tempus/CIA was – at best – a Pyrrhic victory for WPP; while in the case of Cordiant Communications, Havas was never as well placed as Publicis Groupe to defeat Sorrell. But failure to secure Grey is much more serious, because its significance goes well beyond slighted personal pride.

For of the three, Grey is easily the best-quality business and its acquisition would have offered Havas a unique passport to the relative security of the top table in marketing services. There won’t be another opportunity of its kind again. Strategically, the deal was the answer to all de Pouzilhac’s prayers. Not only would it have doubled his company’s size overnight (whereas Grey is only one-fifth the size of WPP in revenue terms), it would have done so in a geographically complementary way, giving Havas the weight it lacks in the US, plus an invaluable route back to a global client, Procter & Gamble. Then too, Grey’s MediaCom brand could have provided the elusive lustre that Havas’s respected media specialist operation, MPG, currently hankers for internationally.

The trouble was, de Pouzilhac was damned if he made the transformative Grey bid, and damned if he didn’t. Havas is already strapped after a costly acquisitions programme over the past few years. Yet, if he took the financially prudent route of standing aside, he would be censured for lacking corporate vision and courage. If he went for it, he risked breaking Havas financially and jeopardising his own position. In going ahead (with a bid which topped Hellman & Friedman’s, but at $930 (&£516) a share was some way behind WPP’s offer) and failing, he may well face the worst of both worlds: being judged unlucky, and perhaps reckless into the bargain. The financing of the potential deal (through Deutsche Bank) was done in the teeth of opposition from Havas’s main bank, Societé Générale (which sits on the board). Worse, de Pouzilhac has apparently alienated Vincent Bolloré, one of France’s best-known corporate raiders, who just happens to be Havas’s largest shareholder. Fancy a break-up bid anyone? The French press is certainly alive with speculation about one.

With Grey to digest, it’s unlikely that WPP would be an early candidate for any such enterprise, despite Sorrell’s openly professed interest in MPG. Though the Grey deal has added an enviable client list at a reasonable price and will, perhaps, propel WPP into top position over Omnicom, it leaves a few unanswered questions . More favourable tax treatment under a WPP regime may well push up Grey margins from an industry low of about six per cent. But will that be enough to keep shareholders happy later on? To gain further benefits, Sorrell will surely have to look at pushing fees up and costs down – both of which carry risks, the first by alienating clients, the second by demoralising key staff (who happen to be some of the best-paid in the business). Easing Grey chief Ed Meyer upstairs onto the WPP board may prove one of the easier of these tasks. Longer term, Grey integrated with Red Cell? Who knows?

Stuart Smith, EditorGeorge Pitcher, page 35

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