Dismal first half: Havas reorganizes around Euro network

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Havas is challenging conventional wisdom as it refocuses around a single agency network. But while management touts the decision as an "offensive" move to grow the business, observers see it as a last-ditch defense.

Havas capped a dismal first half with an announcement of a reorganization that will streamline its structure into a single global network, Euro RSCG. Arnold Worldwide will become a "creative alternative" in key markets worldwide, while media unit MPG will handle media assignments for both. The Specialized Services unit-including health-care and recruitment advertising-will be integrated into either Euro or MPG. Those specialty shops that don't fit with either will be sold, said Chairman-CEO Alain de Pouzilhac.

The move will focus Havas on activities in areas showing growth and deal with market volatility without counting on an economic upturn for growth, said Bob Schmetterer, president-chief operating officer. Havas management plans to meet with analysts Sept. 18 to spell out the plan in detail.

Havas revenue dropped 18.8% during the first half of the year, 6.8% after adjusting for currency and acquisitions. Revenue growth deteriorated from a drop of 5.8% in the first quarter to a second-quarter drop of 7.8%.

An analyst from investment consultant FirstInvest described the financial results as "worrying," but said the restructuring proves Havas is "making a considerable effort to put its house in order."

The streamlined restructuring begs a question: Could Havas be cleaning up to appeal to a potential buyer? The acquisitions of True North Communications, Bcom3 Group and Cordiant Communications group in the last two years have left Havas and Grey Global Group alone in the midsize tier. Both Grey and Havas have been rumored to be in acquisition talks in the past-including talks with each other. With its weak stock performance in the last year, Havas could become a target.

focus on `the best'

Mr. Schmetterer denied Havas is dressing up for a sale. "It has nothing to do with wanting to sell it, but with wanting to do the best," he said. Analysts said the group was unlikely to appeal to potential buyers for at least 12 months, but they noted that the reorganization could make it a more attractive proposition in the longer term.

"The plan has the merit of simplifying the group's structure, reducing costs and improving visibility," added an analyst from the French brokerage Aurel Leven.

three in three

This is Havas' third reorganization in as many years. In November 2001, it announced a restructuring focused on Euro RSCG, Arnold and MPG. It followed in May 2002 by splitting Euro's U.S. operations into two agencies, New York- based Euro RSCG MVBMS Partners and Chicago-based Euro RSCG Tatham Partners.

"Havas has already been through a structural reorganization in 2001, which cost some 150 million euros, and we haven't seen any positive results. The question is, will this latest reshuffle have any positive effect on revenues?" said another analyst, who did not want to be named.

Mr. Schmetterer believes it will. It will add "firepower" to Euro that will be more attractive to global clients, and it will free Arnold to grow in key markets, he said.

contributing: mark tungate

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