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Vincent Bollore

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What:Paris-based entertainment conglomerate Vivendi has made a US$2.6 billion offer to acquire a 60 percent stake in advertising group Havas. The combined entity would have annual revenues of 13 billion euros (approximately US$14.3 billion)  and add a new business to the Vivendi group, which owns Universal Music Group (UMG) and Canal Plus.
Why it matters: Havas is a top 6 global agency with a major media buying operation worldwide.  The transaction also reflects a trend in which media companies and agencies are integrating. It also raises certain questions on the future media neutrality of Havas as a media buying entity.

French tycoon Vincent Bollore took a first step in his attempt to merge media giant Vivendi and advertising company Havas, two groups he controls through his family-run conglomerate.

Vivendi said it was making an offer to buy Group Bollore’s 60 percent stake in advertising group Havas for 9.25 euros a share, a premium of 8.8 percent over Wednesday’s closing price, in a 2.36 billion euro (US$2.6 billion) deal.

The combined entity would have more than 13 billion euros(approximately US$14.3 billion) in annual revenues and add a new business to the Vivendi group, which owns Universal Music Group (UMG), one of the top three world record labels, and France’s number one pay-TV Canal Plus.

The offer values Havas’s total equity at 3.9 billion euros.If Bollore’s conglomerate agrees to sell its stake in the ad company, Vivendi plans to launch a simplified public tender offer on the remaining 40 percent of Havas at the same price, without seeking to delist the company, according to the statement.

Vivendi said a merger with Havas would strongly increase its group margins but did not provide details on the potential synergies between the two groups. It said it aimed to close it by the end of June, beginning of July.

Vincent Bollore, Vivendi’s chairman and controlling shareholder with a 20.65 percent stake, has pledged to turn the group into an integrated European media powerhouse and has launched a spree of acquisitions, including in Telecom Italia and Italian broadcaster Mediaset. Havas, led by Bollore’s son Yannick, was one of the two top targeted businesses in Vivendi’s next expansion phase, two sources close to the matter said last month.

Bollore Group stated: “Given the financial terms, the strategic rationale and the development prospects implied by Vivendi’s indicative offer for the 20,000 employees of Havas, the Boards of Groupe Bolloré have welcomed it and have decided to enter into discussions with Vivendi.”

Vivendi stated: “Through joining Vivendi, Havas will have access to financial resources for both its organic and external growth worldwide. The teams from both companies, who share the same passion for creativity and innovation, will work together to develop value-creating joint projects, while maintaining execution agility and their own identities.”

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As we published last week Starcom Media Vest lost its Telefonica media planning and buying business to Havas Media after it won the pitch in July. Many observers of the agency and client world are shaking their heads. Five things you need to know about why Starcom lost the Telefonica business (approximately US$ 250 million a year) and its implications for the media buying and planning business of major agencies.

1. How did it happen?

TelefonicaThe decision to move Telefonica’s LatAm media business from Starcom (Publicis Groupe) to Havas Media Group (as well as Telefonica’s European Media business and O2 business from Publicis’ Zenith Optimedia to Havas) is part of an overarching business decision made by Telefonica chairman César Alierta following the purchase of Vivendi’s Brazilian broadband unit GVT for US$ 9 billion in September. Last, but definitely not least, Vivendi chairman and majority shareholder Vincent Bollore also owns a 36% stake in Havas and his son Yanique Bollore is CEO of Havas. The Telefonica Latam business was a bargaining chip in a much larger business deal involving the US$ 9 billion GVT broadband business.

The Telefonica Latam business was a bargaining chip in a much larger business deal involving the US$ 9 billion GVT broadband business.

It can be argued that while the transaction was not in accordance with open procurement rules by which Telefonica had awarded the media buying and planning business to Havas in July, the deal may benefit Telefonica stakeholders because it likely helped Telefonica to get a lower purchase price for Vivendi’s Brazilian GVT unit..

2. Was Havas part of the July pitch for Telefonica business?

Reliable sources tell Portada that Havas participated in the pitch won by Starcom Media Vest, as announced in  July,  and came in fourth position.

3. Why are media planning and buying businesses prone to be bargaining chips when there are even larger deals at stake?

Abstract metal connection concept earth backgroundFor two reasons. First,  media buying and planning revenues for agencies can be very sizable chunks of business, particularly when they involve major advertisers who have hundreds of millions of media expenditures a year. A creative assignment will never amount to that type of revenue. Therefore media assignments are valuable chunks of business that can be traded and be part of even larger dealings as the Telefonica-Vivendi deal shows. Second, and also very importantly, media buying and planning assignments are relatively easy to move between agencies.Some observers argue that the media buying and planning business is a commodity as opposed to the creative business where a larger degree of know-how and insights are needed.

Some observers argue that the media buying and planning business is a commodity.

4. Why is Telefonica a particularly difficult case?

Companies that are heavily regulated like telcos or utilities or where the government has a stake, like Telefonica, are more prone to politica decision-making and interference. The same way Havas was favored now in Telefonica’s decision, its predecessor Media Planning Group (MPG) lost the Telefonica business in 2006 when Spain’s centre-right government of president  Jose Maria Aznar lost the general election against the Socialist Jose Luis Rodriguez Zapatero.

5. Is Starcom going to diminish headcount as a result of losing Telefonica?

In the last few weeks, Starcom not only got the bad news of the loss of the Telefonica business, but it also lost the P&G Digital Latin America business to Omnicom Media Group. However, Portada has heard that, at least for now,  no headcount reductions in Starcom Latin America are being planned.