Red Cell's future was being discussed at a WPP board meeting in New York this week, boosting speculation that HHCL's senior management will take over what has become virtually a Red Cell "shell operation in the UK.
For Red Cell, the addition of a creative hotshop such as HHCL would be a major step toward real international credibility. For HHCL the move would give it access to an international network and to pitchlists closed to it as a mainly domestic shop.
Lee Daley, Red Cell's chief executive, denied the acquisition of HHCL was a "done deal". But he added: "It is possible that it will become a deal although we are examining parallel paths."
A source close to HHCL said: "Talks are still going on but because a deal isn't imminent it's not a certainty."
A possible agreement has also raised speculation about the future of Rupert Howell. The former HHCL boss, who is now the chief executive of its Chime Communications parent, in which WPP has a 20.4 per cent stake, is said to be ready to leave Chime by the end of the summer.
However, the decision of Lord Bell, Chime's chairman, to continue for another five years is said to have limited his options, and he is unwilling to return to the helm at HHCL.
But Howell this week denied any plans to quit. "I understand why people would ask what happens to me if HHCL joins a network, he said. "But HHCL isn't my main job any more and I want to see it sorted internationally and to help the development of Chime when the market hopefully begins growing again next year."
WPP set up Red Cell in January 2001, linking the former Conquest European network with Singapore's Batey Advertising and Seattle's Cole & Weber, to chase so-called "challenger brands.
The need for a credible London agency has been increased by its acquisition of New York's Berlin Cameron, which has a high creative reputation. Red Cell chiefs are said to have assured Berlin Cameron's founders that a comparable agency in the UK would be found.
Meanwhile, the network is understood to be redefining its "challenger brands philosophy in the wake of growing global competition for such business. Also, agencies such as HHCL and Berlin Cameron already have major names such as Coca-Cola and Unilever on their client lists.