Alain de Pouzilhac, chairman and chief executive officer of Havas Advertising, says he will be “another unemployed guy” if he fails to secure a merger with a US or UK agency partner by the end of this year.
His comments underline the importance that striking such a deal has for parent company Havas and its new owner, utilities giant Compagnie Generale des Eaux.
CGE chairman Jean-Marie Messier has carried out the first stage of his plan to turn the water company into an international communications group.
It bought a third of Havas in February last year, and last week purchased the rest in a deal that valued the company at FF40bn (4.05bn). Havas’s interests include a third share of Canal Plus, Europe’s biggest pay-TV venture, the French news magazine L’Express, a travel agency and a 38 per cent holding in Havas Advertising.
Messier put an end to speculation that Havas Advertising would be sold off at a press conference last week (MW March 12). He said he was committed to keeping the advertising division within the group, but was backing a plan to merge it with an “Anglo-Saxon” agency.
De Pouzilhac believes Havas Advertising faces the same problem as a string of other international agencies. It is big but not big enough and needs to find a partner to create a two string network. It also needs a partner strong in the US.
Havas Advertising owns the EURO RSCG network worldwide, with clients such as Procter & Gamble, Kraft, CitroÃ«, Peugeot, Intel and MCI. It also owns a “sub-network” Campus, which in turn owns WCRS and direct marketer Evans Hunt Scott in London.
The group announced a strong set of financial results with 1997 billings up almost a fifth on the previous year to FF 34bn (3.4bn) and net profit after extraordinary items up 37.3 per cent to FF262m (26m). The rise in billings was due to EURO RSCG winning accounts such as the worldwide Danone babyfood account, the European account for HaÃÂ¤gen-Dazs, Abbey National and project work for Coca-Cola.
But however much new business EURO may bring in, de Pouzilhac believes that it has no future – and neither does he – if it remains a single network. “Advertising groups need critical mass,” he says. “My shareholder (Messier) wants me to find a partner because he wants his share to be diluted – CGE’s core business is pay-TV and telecoms, and he wants to concentrate resources on this,” he says.
Messier will maintain an interest says de Pouzilhac to give CGE’s media business’ access to the advertising group’s research know-how and Internet expertise.
Talks to find a partner for EURO RSCG are underway with a number of companies. Speculation suggests there are advanced talks with Saatchi & Saatchi, denied by Saatchi, and with media group Aegis, which owns the Carat network. “There are no talks going on (with Havas) and none envisaged,” says Saatchi spokesman Alex Sandberg.
When a deal is struck, CGE intends to reduce its stake in Havas Advertising from 38 per cent to between 15 and 20 per cent of the enlarged business.
The new holding company will be renamed. EURO and the second network will merge their marketing services divisions, such as media buying and research, which puts the future of Mediapolis, the joint media venture between EURO RSCG, WCRS and Y&R in jeopardy.
De Pouzilhac says: “Mediapolis will be part of the new game. Y&R will decide if it wants to be involved.” A similar decision must be made by the Campus businesses: “Campus will have a choice; it will be either a sub-network or involved in the second network,” he says.
The outdoor advertising interests of Havas, organised under the Avenir division of Havas Media Communications, are to be kept in the group, so Mills & Allen in the UK is not for sale.
Any proposed deal will form part of a trend that many believe will lead to just a handful of key agency players emerging over the next decade – each with one, two or three networks. The list will include the three largest groups: Omnicom which has the BBDO, DDB and TBWA networks plus its Diversified Agency Services; Interpublic which owns McCann-Erickson, the Lowe Group and Ammirati Puris Lintas and the WPP-owned J Walter Thompson and Ogilvy & Mather.
But the race is on for mergers between the second rank agencies which have just one strong international network to position themselves as future players. Havas, Young & Rubicam, the MacManus Group – which owns DMB&B and NW Ayer – Saatchi & Saatchi, Bates Worldwide, Dentsu and Leo Burnett are all in the frame. Talks on a media deal between DMB&B and Leo Burnett have been revealed in the past two weeks.
One observer explains the trend: “Analysis shows there are significant economies by having two networks rather than one. With more networks it is possible to raise greater funding from investors. But also as the clients become bigger, they are reassured by working with bigger agencies.”
There has been a trend towards global consolidation of accounts and therefore agency rosters. IBM slimmed down from 40 agencies to one, Bayer cut its roster from 48 to three, Reckitt & Colman followed suit, cutting back its 35 agencies to just one and SC Johnson from 28 to two. Bigger advertising accounts require bigger networks to handle them – if you have two such networks, the chances of capturing one of these mega-clients increases.
This process of consolidation is hampered by client conflicts. Procter & Gamble is considered to have the severest policy of any client on conflict. And de Pouzilhac recognises that he cannot merge with an agency that has business conflicting with any of his P&G accounts.
He says: “We do not want to lose P&G, it is one of our top 20 clients and we are delighted to develop that business.” Hence strong rumours that he is in talks with other P&G agencies such as Saatchi, DMB&B and Grey.
Developing the P&G business is part of the reason EURO RSCG moved its headquarters from Paris to New York last year. By April, de Pouzilhac had put US executive Bob Schmetterer in charge of the office, hoping his contacts would help EURO build other global business – it is estimated that 80 per cent of international accounts are run from the US. Havas bought top US media company SFN Media Corporation in February this year, which has billings of $1bn (617m).
Among the single agency networks, observers say that “everyone is talking to everyone”, as they compete to strike deals. Y&R and giant Japanese agency Dentsu are both preparing for stock market flotations to give them the financial muscle to make acquisitions, though Dentsu talks of building its network organically rather than buying an existing one.
Havas Advertising’s deal will be the first of many. One well-placed source believes a deal will be announced “before the summer”, and says the CGE takeover of the Havas group has strengthened de Pouzilhac’s hand, enabling him to reduce the advertising division’s debts, which stood at FF714m (72m) at the end of 1997.
De Pouzilhac says he has been friends with CGE chairman Messier for more than ten years, so when Messier declared to the world last week that Havas Advertising was not for sale, de Pouzilhac believed him. But if de Pouzilhac were to fall down on his side of the bargain – netting a second network – Messier might have no choice but to sell up.
Assuming a deal goes ahead, it will shape the future ownership of the world’s second tier of advertising agencies. It will take at least two networks out of the circus of negotiations which is taking up so many hours in the London, Paris and New York headquarters of some of the world’s largest agencies.