Havas lifts its game – or perhaps its skirt

With Cordiant Communication’s exit from the stage, following the long-running acquisition saga, the spotlight now falls on French-owned Havas as the next potential takeover target for advertising’s big predators.

While WPP Group’s manoeuvrings to nail the Cordiant deal monopolised the media’s attention, Havas was struggling, largely unnoticed, with yet another round of poor first-half earnings and was undergoing a major restructure.

In the UK, the group has merged Euro RSCG Wnek Gosper with Partners BDDH in an attempt to create a global advertising brand, to be called Euro RSCG Wnek Gosper Partners.

The move comes not long after Havas posted a year-on-year fall of 18.8 per cent in its revenues – to E836m (£588m) – for the first half of 2003 – down from E1.02bn (£724m) in the first half of 2002.

Speculation about Havas’ vulnerability to a takeover is now widespread in the industry. One insider says: “As a global player, Havas is not big enough to be formidable. The restructuring is the first step towards putting its house in order and preparing for a sale. The group is too top-heavy and the management will want to make some money and get out, avoiding the fate of Cordiant.”

Euro RSCG Wnek Gosper Partners co-chairman Chris Pinnington says it is unfair to compare Havas to Cordiant and that the reason for pursuing integration and reorganisation within the group is to “drive revenue growth and improve profitability”.

He is at pains to point out that the restructure and name-change are neither an attempt to paper over any cracks nor a cost-cutting exercise.

Pinnington finds support from Grey Worldwide London chief executive Garry Lace, who says: “I don’t think the reason for doing this is simply to cut costs, but that the group has decided it needs to have a strong creative group – which is what the merger will genuinely produce.”

Both the UK agencies have had mixed fortunes in the recent past. Euro lost the £25m Abbey National account this year, but plugged the gap by winning the £25m advertising business for Cap Gemini Ernst & Young (MW April 15). Last week, Partners won the £7m British Heart Foundation anti-smoking campaign business, just when McDonald’s put the brakes on its plans to appoint the agency to its £6m children’s advertising account (MW last week).

On a global level, Havas’ client list includes Peugeot, Intel, Reckitt Benckiser, Air France and Moët Hennessey Louis Vuitton.

Bob Willott, founder of financial adviser Willott Kingston Smith, says: “Havas suffers for not having a high profile as a global advertising network. Its attempt to create a single global advertising brand, Euro RSCG Worldwide, is a sensible move. Havas is trying to get its core business in order, which is what Cordiant should have done with Bates.”

Havas has actually been restructuring since 2000, when it acquired US creative agency Arnold as part of the purchase of the Snyder Group. Havas created the Arnold Group, which included Partners BDDH, to sit alongside Euro RSCG Worldwide. But the status of Arnold has been somewhat ambiguous: it has always been without a major multi-market client and so could never offer a global proposition.

The group restructuring means that Havas has effectively ditched the two-network structure in order to deliver “integrated services”. While Havas’ global clients will be served by Euro RSCG, Boston-based Arnold will be positioned as a creative alternative in key markets.

An insider admits that Havas might need to pull off a major deal to remain a global player. But, given the state of the economy, splashing out on big acquisitions may not be easy or wise.

Critics point out, on the other hand, that Havas is clearly in danger of getting left behind in the race to consolidate. In 2001, Havas offered to buy Tempus Group for about $600m (£425m at the time). However, WPP Group countered with its own offer for the company. Havas eventually withdrew, blaming a worsening economy and the September 11 terrorist attacks.

But some experts say that the bidding for Tempus was a public admission that Havas’ Media Planning Group needed bolstering. At the time, it was suggested that a deal with Grey, which owns MediaCom, could have solved that problem. MPG is currently repitching for one of its biggest accounts – the £200m France Telecom media planning and buying business – against OMD.

Willott, however, feels that the industry’s consolidation phase is coming to an end. He adds that “there are not many options open to Havas. The network wasted too much time with the Tempus bid. Now is the time to strengthen its existing business.”

Currently the world’s fifth-largest advertising group with profits of E95m (£66.8m) last year, Havas is a still a long way behind the fourth – Publicis Groupe, which had combined profits of E237m (£167m) in the same period.

While Havas maintains that its restructuring is not geared towards a future sale of the group, the industry is waiting to see how long this mid-level player will be able to survive as an independent business.