Havas posts 10.3% decline in revenue for '04 first half

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Havas chairman-CEO Alain de Pouzilhac believes it would be "stupid" not to consider buying Grey Global Group but, while reporting spotty financial results for the first half, he promised investors the company will first try to get its own house in order.

In a conference call with analysts, Mr. de Pouzilhac said the struggling ad company has lined up financial partners behind a bid for Grey, but only after it resolves the refinancing of $803 million in bonds due in 2006 and if it can do a deal without diluting earnings.

"We'd be stupid not to do that, but it is not a necessity," he said. Geographically, the two are "perfectly complementary" and the combination of their media-buying units-Grey's MediaCom and Havas MPG-would make one of the strongest brands in the world, he said.

Chief Financial Officer Jacques Herail hedged when asked if Havas has begun due diligence on Grey, but said executives "are going to do the appropriate process to make a judgment."

"Havas should be extremely interested in acquiring the U.S. agency ... given the complementary [nature] of the companies' relative strengths and Havas' continued struggle to gain market share in the face of its much larger competitors," said Credit Suisse First Boston analyst Frederick Kooj. But in a report to investors, he retained a rating of underperform for Havas' stock, citing the "deteriorating situation" at Euro RSCG's U.S. operations.

Havas reported revenue of $906.4 million for the first half, a drop of 10.3% from the year before, but a 0.6% increase on an organic basis, after factoring out currency fluctuations and acquisitions. Second-quarter revenue dropped 9.4% to $474.9 million, but was up 0.5% on an organic basis. Havas will report full results on Sept. 16.

While European markets showed improvement in the second-quarter-revenue in France was up 9.6% on an organic basis, while it grew 2.3% in the U.K. and 1.5% in the rest of Europe-the U.S. was down 5.9% due to account losses at Euro RSCG offices in Chicago and San Francisco. The U.S. makes up 40% of Havas' revenue.

debt situation

Many analysts also zeroed in on Havas' debt situation and its plans to redeem the convertible bonds. As part of its restructuring efforts, Havas is seeking to refinance the bonds, issued in 2000, when the company's stock was trading at more than four times the current price.

Mr. Herail said all options are open, but added Havas doesn't have the same issues with debt as it had last year, when it paid $58 million to bondholders to keep them from cashing in their bonds for redemption in January 2006.

"The question is to have a good optimized solution," Mr. Herail said. Havas plans to move quickly after it closes its first-half accounts in September and will have the matter settled by year-end, he said.

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