Feature

Keeping Havas in the global game

Getting Havas' house in order, not cutting the major deals the industry expects, is Alain de Pouzilhac's priority. And Sir Martin Sorrell is off the menu, writes Dominic Mills.

Lunch with Alain de Pouzilhac is a splendid occasion. We are at Stade Roland Garros to talk, bond over five courses and fine red wine and, of course, to watch a bit of tennis. The Havas chief executive is in good form, by turns theatrical (he pretends to cry at his absence from a reprint of Campaign's Kings of Madison Avenue series); self-deprecating -- he is, he insists, only the 35th best-paid person in Havas; and, as talk turns to Havas' former parent company, Vivendi, and the travails of its former boss, Jean-Marie Messier, happy to gossip.

Despite my best efforts, however, it is well over 90 minutes before I can work Sir Martin Sorrell into the conversation. A few weeks earlier, in an interview with The Sunday Times, de Pouzilhac had let rip about the WPP group chief executive, describing him, among other things, as a "bad guy", without ethics or values.

This was a rare breach of protocol between the big chiefs of the holding companies who, whatever they might say about each other in private, rarely show anything but respect and cautious admiration for their rivals in public. And yet, although he clearly enjoys a bit of verbal sparring, this seemed uncharacteristic for the urbane and engaging de Pouzilhac. So was it a calculated outburst, or evidence that a man who, under intense pressure, had let the mask slip?

The cause of the enmity between the two is well known: a tug-of-war last summer over Tempus, in which Sorrell trumped Havas' £425m bid for the media buyer. A bizarre chain of events then ensued. First, there was the ferocious war of words including, it is said, the disparagement of de Pouzilhac as "a little Frenchie". Next, Havas withdrew its bid. Then, post-11 September and despite its best efforts to withdraw, WPP was obliged to buy Tempus.

So, in a scenario rich with irony, de Pouzilhac didn't get the thing he wanted, while the man who denied him that prize was forced to take something he didn't. This clearly gave de Pouzilhac an intense feeling of schadenfreude. "I found one guy who is more arrogant than the entire French nation put together," de Pouzilhac concluded to The Sunday Times.

But today there is no chance of further indiscretions from de Pouzilhac about Sir Martin. "We've talked. It's over. I have no comment and no regrets,'" he says. Is it, I wonder, "no regrets" in the defiant, fuck-you, manner of Edith Piaf or the shoulder-shrugging style of Frank Sinatra's 'My Way'? But there is no further mileage to be had in the subject.

Anyway, the dissing of rivals is not on the agenda. Instead, the issue is the future of Havas, the subject of discussion around the lunch tables of Manhattan, Soho and, indeed, Paris.

It's easy to see why. In the race to consolidate, Havas is in danger of getting left behind. Currently the world's fifth largest holding company with an income of $2.7bn, Havas is a long way behind the fourth, Publicis/Bcom3, which has a combined income of $4.7bn. The fact that it was de Pouzilhac's arch-rival, the Publicis boss, Maurice Levy, who stunned the ad world by pulling off the Bcom3 deal, adds extra piquancy.

So, the industry speculates, de Pouzilhac must do a big deal rather than a series of piecemeal buys if Havas is to remain a global player. But this is not the best time to be splashing out on the kind of acquisitions that would achieve that aim. Anyway, the only realistic targets -- Cordiant and Grey -- are by definition the runts of the holding companies' litter and only make it on to the shopping list by default.

Then there's the media side. Making a play for Tempus and then failing to land it was a public admission that Media Planning Group needs bolstering. A Cordiant deal wouldn't solve that problem since it would trigger a Publicis option to buy the remainder of Zenith.

A Grey deal with MediaCom might, however. Others speculate about Aegis.

While he is clearly aware of the almost constant speculation -- three days after we met The Observer claimed Havas had agreed a £1bn bid for Cordiant, a story firmly denied by both sides -- de Pouzilhac is having none of it.

There's nothing going on with either Cordiant or Grey, he maintains, and Aegis definitely isn't on the radar. He won't even accept that Media Planning Group is a problem that needs solving -- although I could find no one outside the group who would agree with that -- and nor does he believe that Havas' agenda should be set by what his peers are doing. The message is clear: a big acquisition is not on the cards, so the gossips can stop talking about Cordiant, Grey or Aegis.

"We're focused on a rebound in our profitability this year," he says. "We're focused on organic growth, new business and our customers. For the moment that is our strategy. Even if the market is negative [in terms of growth] I feel we will outperform our competitors in terms of organic growth."

Against a difficult economic background -- Havas declared profits for the first quarter down by 8.1% -- this need to perform financially is a theme de Pouzilhac returns to several times. He is at pains to point out that a recent €450m bond issue was not to fund acquisitions but to improve Havas' debt profile and cash flow.

Although he doesn't say it specifically, the inference is that de Pouzilhac wants to get Havas' house in order before he makes a big acquisition. There is a clear sense that Havas' institutional shareholders are unlikely to countenance an expensive and potentially margin-diluting acquisition for the time being. Certainly, looking at Havas' 2001 margin of 10.4%, de Pouzilhac has some work to do if he is to match his peers. "Our target for margin improvement is 1 percentage point plus," he says, but some would think that not overly ambitious.

Notwithstanding this, de Pouzilhac acknowledges he will have to buy at some point if he is to address certain problem areas. "I am well aware of our strengths and weaknesses," he says. Then comes the caveat: "If an extraordinary opportunity were to come up that was appropriate financially and strategically, then..."

Havas' strengths are plain, even if the list is short. It's also possible that as investors fixate on acquisition accounting in the wake of the Omnicom fiasco, Havas' recent modest acquisitions policy may work in its favour.

More specifically, revenue from higher margin marketing services, the only area to show growth in the past 12 months, is about 52%. The proportion of revenue derived from pure advertising, including media buying, is declining. In the current climate and the prevailing trend, this is a good place to be.

Second, Havas' two main providers of marketing services, Brann, part of the Arnold group, and Euro RSCG Impact, are both strong brands in their own right, and collectively hold a strong position in the all-important US market.

Furthermore, Euro RSCG, Havas' principal network and the jewel in its crown, was one of the first to position itself as a provider of integrated solutions. Some 60 of its clients buy three or more services from it. Euro RSCG itself is a strong brand, ranked fifth globally, sixth in the US and first in Europe.

On the softer side, de Pouzilhac firmly believes Havas' multicultural approach is both a plus and a point of differentiation with rivals. Certainly it is true that the top management of Havas and its operating units has a distinct multinational flavour: Americans, Britons, Spaniards and French all play prominent roles. "You've got to understand that Alain is obsessed by this," a colleague says. "It really matters to him. He thinks this is something Anglo-Saxons just don't get."

Other than that, it's a bit of a mish-mash and what Havas might say are strengths could also be interpreted as weaknesses. For example, it is heavily dependent on the US (44%) and Europe (48%) for its revenues. That's good in that they're the biggest markets, bad in that it is under-exposed to Latin America and Asia.

Then there are the individual brands, and a recent re-organisation which has seen its Diversified Agencies Group -- basically everything that's not advertising or media buying -- disbanded and divvied up between the three key brands: Euro RSCG, Media Planning Group and Arnold Worldwide Partners. The party line is that this is a cleaner, simpler structure better able to deliver synergies and cross-selling of services. The word "advertising" has also been dropped from the holding company name better to reflect the Havas proposition.

Yeah, well, hmm. Organisational restructures, name changes and the like are always more significant inside the organisation than outside, and there's a level at which they look like a bit of nifty post-rationalisation designed to plaster over some weak spots. De Pouzilhac counters by pointing to the capture of the global Reckitt-Benckiser and the UK Argos business as evidence that the reshaped Havas can pull in new business.

The bigger picture, however, as de Pouzilhac admits, centres on two issues. First, Media Planning Group. "We've given ourselves 18 months to get MPG into the top five," he says bluntly. The trouble is that that's not easy to do. It may be strong in France, Spain and Latin America, but that's it. Everywhere else it is, as in the UK and US, at best top of the second division and, as de Pouzilhac notes, "our approach is local because that's what the customer wants".

Incremental, one-off local deals, such as this year's purchase of the German independent Schmitter and, in the US, the merging of Arnold Media into MPG will bolster the offering over time, but the question is whether it's fast enough. Little wonder, as rivals unfold bigger and bigger operations, de Pouzilhac was so keen to buy Tempus. Absenting any other options, the most likely bet is a series of piecemeal purchases in big markets. "Given a choice I would reinforce MPG in countries that matter," de Pouzilhac says, "rather than buy in Asia." This suggests that purchases in the US and the UK, two critical markets where the MPG brand has fallen behind the competition, are more likely. The difficulty is that there isn't much worthwhile to buy.

Then there's Arnold, the US creative hotshop that came with Havas' purchase of the Snyder Group in 2000 and around which de Pouzilhac is building another network. While de Pouzilhac describes Arnold as a "dream purchase" with a creative lustre akin to BBDO's, its status is, frankly, a puzzle. Is it a network? Or is it an alliance, a loose affiliation of sort-of like-minded creatively driven shops overlaid with a veneer of integration through the Brann sub-network? And if Havas is also selling integration through Arnold, how does that stack up against Euro RSCG's positioning?

Either way, de Pouzilhac knows he has to do something about Arnold. "At the moment," he says, picking his words with great care, "we have one-and-a-half networks. We need two strong global networks." Despite all this, de Pouzilhac oozes optimism for Arnold. "I'd rather have Arnold with its great reputation in just 11 countries than a global network with no creative reputation," he asserts.

A major issue is that Arnold is heavily biased to the US, where 60 per cent of its income derives, and represented in only 11 countries, of which it provides integrated services in just three. The plan is to roll Arnold out to 20 markets by the end of 2003, but without a major multimarket client there is some way to go before it can offer a serious global proposition.

More tellingly, if Arnold is supposed to be a network, why is the Arnold name not on the likes of Partners BDDH? The answer, apparently, is that Arnold refuses to let its name be used on the doors of its so-called sister agencies. That it should be allowed to take this line when the one thing Havas needs is to be able to offer two networks seems odd.

And so we come to a major philosophical issue, one that sets de Pouzilhac apart from WPP and IPG. This is the role of the holding company as a sort of über-agency, striking global one-stop deals with the biggest clients and cherry-picking the best bits of their groups to work with said clients. De Pouzilhac describes it as "unethical". For him holding companies have to remain neutral. "That doesn't mean Havas is not engaged with our clients. Of course we are. But this is a very dangerous trend because it means the holding company is taking power away from the managers of its networks."

Cynics would say that de Pouzilhac has to take this stance because he hasn't got the weaponry to compete with the big holding companies. So if he can't join them, he'll disparage them. But de Pouzilhac is having none of this. He is convinced that holding companies which behave like this, favouring one client over another, are storing up trouble.

For a moment it looks as though he will launch into an attack on his peers. But discretion prevails. "You should know," he says, "that there are three things Martin Sorrell and I agree on: one, the trend is Americanisation, not globalisation; two, no recovery in 2002; and we both have houses in the south of France."

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