Stuck in the Middle: Havas Set to Retrench

Latest restructuring coincides with poor first-half earnings report

Havas’ latest round of restructuring signaled it has abandoned hopes of parlaying Arnold as a second global network and is resigned for now to remaining a midlevel player among the global holding companies.

The news last Thursday that the French holding company is streamlining its operations and reinforcing Euro RSCG Worldwide as its flagship network coincided with the release of poor second-quarter results. In contrast, Omnicom numbers a day earlier hinted at signs of an industry recovery. Omnicom reported a 2.6 percent increase in first-half growth, while Havas, hurt by continuing deterioration in the European ad market and in marketing services overall, posted a 6.8 percent slide.

The strong euro and pound continued to pummel the Paris-based concern: Revenue of $944.1 million in the first half was off nearly 20 percent from a year earlier.

Havas CEO Alain de Pouzilhac did not return calls. But company execs were quick to distance the latest round of restructuring—the third in three years—from the earnings release. “Although [Havas] issued disappointing results, this isn’t related,” said Bob Schmetterer, Havas president and COO, and CEO of Euro RSCG. “It’s not a defensive move. It … will take advantage of flexibility, size and talent within the organization.”

Schmetterer may draw on outside talent as well: Sources said James Heekin, the former CEO of McCann-Erickson WorldGroup, is in negotiations for a post at Euro RSCG [Adweek, July 21]. “We don’t comment on people we may or may not be talking to,” Schmetterer said. Heekin could not be reached.

Since April 2002, Havas has been folding above- and below-the-line units into new multidisciplinary entities with a single management structure and bottom line. The reorganization furthers that process. The 21 companies that make up Havas’ “specialized services” operations will be integrated into Euro RSCG and Havas’ Media Planning Group. Havas said it will sell units that don’t fit into either company and will release more details Sept. 18. While Havas’ global clients will be served by Euro RSCG, Boston-based Arnold will be positioned as a creative alternative in key markets.

As a part of that change, some of Arnold’s units will shift into Euro RSCG. Sources said one of those will be Brann Worldwide, the Wilton, Conn., direct marketing shop with $660 million in 2001 billings (the latest numbers available). In Havas’ last reorganization, in late 2001, Brann was moved to Arnold as part of an effort to launch the agency as a more significant global player.

“In a world of international and global growth, you need to have scale,” said Schmetterer. “To be able to build that is not an easy proposition.”

Not as easy as it might have appeared in 2000, when Havas paid $2.1 billion for Snyder Communications, a deal considered rich even by the dot-com standards of the day. Snyder—parent of Arnold, Brann and Bounty, a healthcare unit—made Havas the industry’s fourth-largest player. Later that year, Havas surprised the French Bourse by the size of a then-$627 million convertible bond offering. Early last year, when Havas sold another $320 million bond issue, the company was still looking at acquisitions, and midlevel peer Cordiant Communications Group was said to be among the possibilities. (Havas denied those reports.)

Now, with CCG sold to WPP and Havas alone as a medium-sized independent, many expect the company is looking to maximize its worth and avoid the fate of CCG. While the company cut its debt slightly to $747 million in 2002, from $791 million, it still faces maturing convertible bonds in 2006 and 2009.