Mexican stand-off continues over Tempus

So Havas chief Alain de Pouzilhac is taking his time in responding to WPP's counter-bid for Tempus. It is Friday now and still no postcard from France, writes Gordon MacMillan.

You can bet that the Frenchman, always described as suave, is uncharacteristically sweating this one out. Imagine lots of pacing up and down as the Havas team tries to work out what game the WPP chief Sir Martin Sorrell is playing.

To begin with, it must have all seemed so simple. Havas would merge its Media Planning Group with the UK media group Tempus and together they would create a world-class media-planning and buying network. Perfect.

This would propel de Pouzilhac into the media majors. There was, of course, a sticking point in Sir Martin and his 22% stake in Tempus. What would he do? What will he do?

The question now is will the deal unravel for Havas? To answer that you have to somehow work out whether Sir Martin really wants Tempus. The only answer available to this question right now is that it makes sense. Generally speaking, that is. To clarify that -- it makes good sense to buy another media agency, but it doesn't absolutely have to be at all costs Tempus.

Bidding wars

On paper, the situation before WPP threw its counter-bid in was this. Havas had bid at a 50% premium on Tempus's closing price on July 18. This even though Tempus was warning of a tough year ahead.

For de Pouzilhac, the premium was clearly worth it to secure his ambition of creating a world-class media operation. After Havas had submitted its bid, Sir Martin and his team had a look at the books -- a long look at the books -- and waited until August 20.

Sir Martin's bid surprised city analysts. At 555p, it was only 3% higher than Havas's original bid of 541p. Analysts had been expecting a knockout bid or at least 560p.

It was the value of the WPP bid that moved talk in adland to question whether Sir Martin really wanted Havas. Was his bid anything more than a ploy to force Havas to pay more and so increase the value of WPP's 22% stake?

Rules of the game

If so, can de Pouzilhac afford to come back with a higher bid? There must be some reluctance on his part, knowing as he does that Sir Martin is dictating the rules of the game.

He also knows that if he does bid and WPP bows out, it does so with an increased profit, maybe as much as £50m. If WPP does not bow out, there is the knowledge that, because of the 22% acquired for an average price of 200p, Sir Martin will get Tempus for £385m if no higher bid from Havas is forthcoming.

Here it is worth looking at the agency story to see what, on paper, WPP would get in buying Tempus. CIA has billings of $6.5bn (£4.5bn) worldwide, and all but $1bn (£691.6m) of that is in Europe. CIA is not big in the US. At WPP's Media Edge, the story is different. It has total billings of $11.1bn (£7.7bn), $4.5bn (£3.1bn) of which is in the US and $3.7bn (£2.6bn) is in Emea.

Together the two would create a media-buying company with billings of $17.6bn (£12.2bn). There are several things to say about that. Firstly, it will make it the world's number-four agency and one that is relatively evenly balanced in the US and Europe.

Finding a balance

It would also bring balance to WPP as a group. WPP owns three major advertising networks in J Walter Thompson, Ogilvy & Mather and Young & Rubicam, and one major media agency in MindShare and the smaller Media Edge. With two more equal media networks, WPP will win a larger slice of the global media pie as accounts increasingly look to centralise globally with large players.

Incidentally, a theoretical CIA/Media Edge would also be bigger than the merger of CIA with Media Planning Group, which as a combined entity would have billings of around $14bn (£9.7bn).

But all that really tells us is that a second major media network makes sense. The other name in the frame is Aegis Group, which owns the larger Carat. It is possible to go back over this article and replace Tempus with Aegis.

The biggest prize

Aegis is bigger, more than double the size of CIA. It is valued at more than £1bn and it would certainly make a considerably prize. Network wise it has European billings of $10.3bn (£7.1bn) and US billings of $2.6bn (£1.8bn). However, Doug Flynn, the redoubtable Australian and former News International general manager, has consistently said that Aegis is not up for sale. He has said this again very recently.

Tempus, on the other hand, is most definitely up for sale and, while Tempus chief Chris Ingram was initially hostile to a WPP bid, his enmity seems to have eased. Following the WPP bid, the board withdrew its backing for Havas's offer and said the company would be auctioned to the highest bidder.

Sir Martin has obviously been on his own charm offensive, having met Ingram and gone some way to win him over.

So does Sir Martin really want Tempus? The answer has to be yes, but his offer does indicate a certain cautiousness, which says that he doesn't want to over-pay if he doesn't have to.

As Havas mulls its options, Sir Martin will be mulling his. If Havas comes back with a small increase -- say 560p -- the money is on Sir Martin, who famously hates to lose a deal, to respond with another slightly higher bid of his own. Poker faces all round.