Havas, Y&R on the ropes

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Corporate raider Vincent Bollore and Havas Chairman-CEO Alain de Pouzilhac are locked in a highly public fight to the death over the future of an advertising company that, ironically, may not have much of a future.

Havas, which announced last week that full-year revenue decreased 9% from the previous year, ranks sixth among global holding companies. It will be a distant competitor by more than $2 billion to the smallest of the Big Four holding companies once WPP Group completes its merger with Grey Global Group.

At the same time, shareholders demand it deliver double-digit profit margins in an industry expanding at a single-digit pace.

Mr. de Pouzilhac last week launched the latest salvo in the battle with the financier, saying he is rallying shareholders aligned with management's interests to preclude Mr. Bollore from gaining control of Havas without paying a premium. The move is an attempt to fend off Mr. Bollore's ongoing effort to exercise greater power over management of Havas. But it is also a tacit acknowledgement that Mr. Bollore-Havas' largest single shareholder with a 20% stake-is a serious threat to the holding company's future.

few options

For Mr. de Pouzilhac, the presence of Mr. Bollore highlights the fact that his options for Havas-owner of networks Arnold Worldwide and Euro Worldwide and media agency Media Planning Group-are few. Havas' financial performance in 2004 improved significantly over the 2003, following a dramatic restructuring, but the company is losing girth in an industry where size matters.

Mr. de Pouzilhac maintained that Havas can survive as is. "I'm quite pleased about organic growth," he said, which rose 2% for the year and 5% in the fourth quarter. He said prospects for profitability in 2004 are good.

One industry executive sees Havas as "a Cordiant-like situation," referring to the former holding company that quickly deteriorated after losing a series of key clients, and was ultimately bought by WPP Group.

Havas is vulnerable now because two major clients-Intel, a $300 million global creative and media account, and Volkswagen of America, a $430 million media-buying-and-planning account-recently departed. While it has won other business (Charles Schwab at Euro; Vonage at Arnold; and AutoZone at MPG in the U.S.), the company is less of a player in worldwide reviews, the lifeblood of global networks. When so much global business is lost in a short time period, "the losses often require deep cuts, which are traumatic," said one industry executive.

MPG just last week recruited Charles Rutman, 53, as CEO North America from Aegis' Carat, where he faces formidable challenges. While strong in certain geographic regions, such as Spain, Latin America and France, MPG needs volume to compete with its larger rivals, and needs to regroup following the Volkswagen loss.

Havas has tried, with little success, to bolster MPG through a joint venture. Today, talks are at a standstill. The reason, Mr. de Pouzilhac said: "Instability because of Mr. Bollore." Another reason, said one executive, is "MPG is negotiating from a position of weakness. Who needs to partner with it now?"

Many expect Mr. Bollore, who has stayed mum on his plans for Havas, will try to get control and break it up. "The separate pieces are more valuable than the whole," said another industry executive.

Last September, Mr. Bollore, a shadowy figure to the general public but a powerful force in the financial world, requested that Havas create a supervisory board with five to eight members. Mr. Bollore wanted to appoint the supervisory board's members.

Mr. Bollore's request will be discussed at Havas' annual meeting in May. It's sure to be a raucous affair.

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