Havas leads ad world's French Revolution

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What a difference a decade makes.

France's biggest ad agencies mounted their first U.S. assault in the early 1990s. But lack of strategic vision and poor international management skills scuttled their plans. As the years passed, the French watched from the sidelines while U.S. and U.K. holding companies took dominant positions on the world stage.

But with Havas Advertising's stunning $2.1 billion purchase last week of Snyder Communications hard on the heels of a U.S. shopping spree by Publicis Group, the French have come into their own.

"They are desperate to prove they are able to compete on equal footing with the Brits and the Americans," one industry veteran said.


Unless the advertising landscape changes again by early July when the deal is to become final, Havas will edge out Japan's Dentsu to become the world's fourth-largest advertising organization with $2.2 billion in gross income. The move puts Havas in the company of global heavyweights Omnicom Group, Interpublic Group of Cos. and WPP Group.

With last week's announcement that it was buying Snyder -- the 11th-largest global ad organization -- Havas further outdistanced its cross-city rival. Publicis itself has seen rapid growth; since January, it has gobbled up Fallon McElligott, Minneapolis, and promotions giant Frankel, Chicago.


Havas Chairman-CEO Alain de Pouzilhac denied the Publicis-Fallon purchase pressured him to strike the Snyder deal at such a hefty premium -- as some industry insiders have suggested -- and said he was not influenced by the ever-shrinking field of U.S. acquisition targets. Mr. de Pouzilhac said the prime motivator was that Snyder's holdings -- which include Arnold Communications, marketing services leader Bounty SCA, direct marketing giant Brann Worldwide and interactive agency Circle.com -- fit with Havas like a missing puzzle piece.

The $2.1 billion price tag equates to a per-share price of $29.50 -- 21% higher than Snyder's recent $23.94. Rival bidders had maintained that paying more than $20 per share was excessive, even though the company had $815.3 million in 1998 sales and $22.8 million in profit that year. The Snyder deal carried a multiple of 17, in line with other acquisitions.

Other industry experts, however, said Snyder's components were worth top dollar.

"Arnold is a brand worth paying a premium for," the industry veteran said, adding that Havas "has a strong commitment to below-the-line marketing, and you can't get a better direct marketing business than Brann."

The Snyder acquisition alters the balance between Havas' revenue flows, with marketing services revenue jumping from 45% of gross income in 1999 to 60% this year.

"We have been strongly centered on traditional advertising until now," Mr. de Pouzilhac said. "With this acquisition, we become much stronger in the marketing services sector, and we become more of a business-to-business and one-to-one specialist."

The deal also increases Havas' presence in the U.S. market, the world's largest market. An anticipated 45% of Havas' billings will come from the U.S. this year, compared with 31% in 1999. The merger also reduces Havas' reliance on its home market of France, and vastly improves capabilities in the marketing services and interactive ad areas.

Even though Mr. de Pouzilhac said no conflicts existed, it was uncertain how clients such as Volks-wagen of America (housed at Arnold) and Volvo Cars of North America (at Messner Vetere Berger McNamee Schmetterer/Euro RSCG, New York) would regard this. Neither could be reached at deadline.

Mr. de Pouzilhac said competing accounts housed under Havas could co-exist because they would work with diffent arms of the holding company.


Arnold is slated to become the lead agency of Havas' fledgling Campus network, an attempt to create a second, creative-based network with offices in key international markets. To increase visibility of Campus, which includes agencies in France, Germany, Italy, Spain, the U.K. and a recently acquired start-up in Brazil, Havas will move the Campus headquarters from Paris to Boston. Additional acquisitions are expected in the coming months in Canada, Japan and South Korea to further Havas' goal of operating its second agency network -- after Euro/RSCG -- in 12 to 15 countries responsible for 85% of international ad spending.

Observers speculate Havas might also scrap the Campus name in favor of a new one not associated with Campus' lackluster past, but Mr. de Pouzilhac said the decision would be made by Arnold Chairman-CEO Ed Eskandarian, who has agreed to keep that post for three years and become chairman-CEO of Campus.


All the talk about Havas' paying a sucker's price may just be tactical, speculated one analyst who asked to remain nameless.

"Everyone who didn't bid for [Snyder] wanted to position it as whoever [did bid] did the wrong math," he said. But he added there is ample reason for the agency world to think Havas paid too much. "Maybe strategically it made sense because Havas needed a U.S. presence, but . . . if they have to overpay like that, that smells of desperation."

Havas Chief Financial Officer Jacques Herail predicted synergies from the merger would generate an additional 3% to 5% in annual revenue. Additional savings after eliminating duplication between the two groups -- particularly in media buying -- are uncertain. Havas will phase out Snyder's Bethesda, Md., headquarters by yearend, for a likely annual cost savings of $3 million, while restructuring an $81 million debt load will lead to additional $2 million in savings, Mr. Herail said.

Contributing: Laurel Wentz

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