Havas to post loss

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Alain de Pouzilhac painted a pessimistic picture to ad industry analysts last week as he announced a $6.5 million first-half loss and a profit warning for Havas Advertising. He said there will be no real recovery until 2003 and outlined a restructuring that will eliminate one of Havas's four divisions, the Diversified Agencies Group.

Havas downgraded its operating profit margins from a 2001 target of 15% to 10%-12%, and Chairman-CEO Mr. de Pouzilhac said he expected 2001 ad spending to fall 6%-9% in the U.S. and 3%-4% worldwide.

At the same time, he stuck to his cherished three-year plan, insisting that the group's media-specialist arm, Barcelona-based Media Planning Group, will enter the ranks of the top five global media networks by the close of 2003.


That seems unlikely. MPG hovers at No. 11 with 2000 billings of $8.55 billion, although MPG does move up a spot with TN Media's consolidation into Initiative Media. MPG was on track to move up fast before pulling out of its $600 million offer for Tempus Group, whose 13th-ranked CIA Medianetwork billed $5.50 billion in 2000. Faced with a counterbid by WPP Group and plummeting stock prices that made Tempus look overpriced, Havas let its bid lapse last month.

With the Havas bid gone, Tempus shareholders overwhelmingly accepted WPP Group's rival $630 million bid on Oct. 1, but Group Chief Executive Martin Sorrell has extended the offer to Oct. 15.

With the extra time, he can wait and see if the market improves enough to make the Tempus deal worthwhile. If it doesn't, he's expected to investigate his chances of citing "material adverse change" as an escape clause.

`more value for less money'

As for Havas, MPG's CEO Fernando Rodes said Tempus "was a nice fit, but we can get much more value for less money."

Havas initially touted the Tempus deal as a wonderful fit that would save Havas investing millions of dollars in major markets where MPG lacks a presence such as Germany, Italy and all of Asia. Now MPG must tackle those markets country-by-country. "We will give MPG the means to enter the top five global networks by the end of 2003," Mr. de Pouzilhac told analysts. "New opportunities will become available on a short and midterm basis."

"We'll continue our geographic expansion," Mr. Rodes told analysts. "There are potential opportunities in markets where we are not yet open like Italy and Germany."

But one analyst, Credit Suisse First Boston's David McMurry, said in a report that "With the company's stated strategy of growth by acquisition effectively on hold and management focused on realigning businesses and disposing of assets, we think the company's competitive positioning is significantly weaker."

Most of the Diversified Agencies Group that Havas is breaking up will likely be slotted into Euro RSCG Worldwide, New York, or Boston-based Arnold Worldwide Partners. The Paris-based group includes 70 agencies such as direct-response giant Brann Worldwide and accounts for 27% of Havas' revenues.

Havas said the restructuring will save the company $119 million through 2002, although the company took a one-time charge of $70 million to cover the Diversified Agencies Group shutdown and restructuring earlier this year that included 1,200 layoffs. Mr. de Pouzilhac said 80% of the group would join one of the other Havas networks. The others will be allowed to stand alone, be sold or closed.

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