"We are a family now"
Outdoor Advertising: Jean-François Decaux, Co-CEO of JCDecaux, on his strategy, the partnerships with Wall and Affichage, and the German business.
Outdoor Advertising: Jean-François Decaux, Co-CEO of JCDecaux, on his strategy, the partnerships with Wall and Affichage, and the German business.
WW In Germany, JCDecaux is the third-largest outdoor advertising company and holds a 35 percent stake in Wall, the fifth-largest. How do the two companies complement each other? Jean-François Decaux: Perfectly. JCDecaux operates in about half of Germany’s 15 major cities with over 500,000 residents; with Wall, we’re present in nearly all of them. The only ones still missing are Frankfurt, Duisburg, Hanover, and Essen. However, a decision is pending in Frankfurt: Wall has submitted a bid for advertising-funded restrooms. If it wins the contract, it will break into the exclusive agreement held by Ströer/DSM (see box on the right).
How does the partnership with Wall work?
I serve on Wall’s supervisory board. Unlike at Affichage, where we hold a 30 percent stake, there is no share transfer restriction clause at Wall, so our voting rights there correspond to our ownership stake.
How were you able to get so deeply involved with Wall a year ago?
We acquired an 11 percent stake in Wall three years ago. After that, Wall entered into a strategic partnership with Clear Channel (CC), our main global competitor, but that fell through. The Wall family then decided to form a strategic partnership with us. We were able to acquire CC’s 20 percent stake, as well as 50 percent of Wall USA. Specifically, this involves the city contracts with Boston and St. Louis. We’ve been responsible for marketing in Boston for a year now and have increased revenue there by over 75 percent. The reason: We can offer Boston in combination with other U.S. cities, such as Chicago or San Francisco, which goes over well with advertisers.
Is there a possibility that Wall will acquire additional shares?
Although we have a right of first refusal, the Wall family would like to maintain the current shareholder structure. So there is currently no basis for an increase in our stake.
Wall is considering an IPO. What do you think about that?
It remains to be seen whether the company can achieve the growth and scale necessary for an initial public offering.
Wall believes, however, that he will be the German market leader by 2010.
So he also wants to challenge JCDecaux's position.
Wall will never be able to achieve market leadership in Germany without JCDecaux. However, we joined Wall with the goal of working together with him, as a local partner, to achieve market leadership in Germany. If Wall grows, we have no problem with that—after all, we hold a 35 percent stake. For example, at the end of 2004, Wall won its first major contract in Freiburg im Breisgau against Ströer/DSM. The more cities Wall wins, the better it is for us as well.
Why did you decide to
Did they pull out prematurely from the sale of DSM a year and a half ago? At the time, there was an opportunity to secure market leadership and 200,000 outdoor advertising locations nationwide in one fell swoop.
That’s true, but we had the impression that the DSM sale could lead to a double sale of the cities: first, when the municipal advertising rights at the time were sold as part of the overall DSM package. And again when the individual advertising contracts expire and are put out to bid. The latter will happen soon, since the DSM concession contracts were only valid for six to seven years. That’s why we pulled back to organically capture these cities with Wall. We are now investing the money we didn’t spend back then in cities like Freiburg, which we are gradually winning over in competition with Ströer/DSM. This strategy is working.
So you turned your competitor, Wall, into a partner.
Yes, in Eastern Europe as well. In Ljubljana, the capital of Slovenia, Europlakat International (EPI)—our joint venture with Affichage—submitted a bid for the city contract three years ago, competing against Wall. EPI won, and Wall filed an appeal. However, I was then able to persuade Wall to withdraw its appeal. Now we’re one big European family: Wall, Affichage, and JCDecaux. Last year, the three of us submitted a joint bid in Hungary’s capital, Budapest, for 250 Citylight display cases and Citylight boards with rotators each—and we won together.
So was Wall's inclusion in Budapest a quid pro quo for his decision not to appeal in Ljubljana?
No, there was no such agreement. We included Wall in Budapest because the synergies were very strong.
Would you like to have Wall participate in EPI sooner or later?
Budapest was a unique situation. I don't know if something like that will happen again. In general, though, Affichage is our partner in the EPI countries—and it will remain so.
At Affichage's request, EPI withdrew from the Czech Republic two years ago. Will you be integrating Wall there?
JCDecaux continues to operate in the Czech Republic through a wholly owned subsidiary; there is no reason to change the ownership structure.
Or are you planning to use Wall to expand into countries that EPI hasn't served yet?
No, we would primarily talk to Affichage, because I feel a sense of commitment to Affichage in the spirit of the EPI partnership. For example, we are currently discussing an expansion of EPI into Romania.
Back to Germany: The sale of Deutsche Eisenbahn Reklame GmbH (DERG) is currently pending there. JCDecaux intends to bid. Do you see any competition law issues given your size and your stake in Wall?
Why? Even with Wall, our market share would be no more than 18 percent. Ströer/DSM also wants to bid, and they have a 50 percent market share. If they don't see a problem, I certainly don't see one for us either.
How did you vote on the supervisory boards of Wall and Affichage when the question arose as to whether the two companies should ever bid for DERG?
No such decisions have been made yet, as the application materials have not yet been submitted. However, Affichage has made a policy decision to double its overseas revenue. This implies that a DERG proposal will also be reviewed. As a major shareholder of Affichage, I supported this decision. After all, it’s better to have two irons in the fire than just one.
You even have three irons in the DERG fire. But are genuine competing bids possible if you sit on the board of directors at all three companies?
Why not?
Because you have a clear view of everything.
We are a major shareholder in all three companies, and a portion of our funds is being offered in each case. That is why I take a pragmatic approach: I support the offer that has the best chance of being accepted and yields the most synergies.
So you wouldn't recuse yourselves at Wall and Affichage when it comes to the DERG bid?
You obviously see a certain conflict here. I don’t. Because I’m certainly not going to tell Wall how Affichage makes its offers—and vice versa. Take the example of Budapest—it was exactly the same there at the beginning as it was with DERG: We considered how best to proceed and then decided to submit a joint bid as a trio. This is possible because we’ll also be bidding with a partner for DERG.
However, Affichage now wants to submit a bid on its own in any case and, if necessary, look for a partner only after the contract has been awarded.
To be honest, I don't think Affichage can acquire DERG on its own. Not because I question Affichage's ability, but because JCDecaux has usually only been able to win contracts in Germany when we partnered with a German company. Based on this experience, I believe that Affichage will also need a local partner.
Another look across the Atlantic: Word is that Viacom wants to sell off its outdoor advertising division. Is JCDecaux ready to pounce?
Viacom decided last week to split into two companies. In my view, this is a step toward selling off assets—such as outdoor advertising—that don’t fit its core business. What you’ve heard is therefore very plausible. Viacom also announced a loss of seven billion dollars in its outdoor advertising division a few weeks ago. They’ve likely made a huge mistake with overpriced acquisitions. Regarding the second part of your question: Yes, we’re interested in Viacom’s outdoor advertising business, because it and JCDecaux complement each other perfectly: We’re number one in Europe; Viacom is number one in the U.S. We’re number two globally; they’re number three. Our family has therefore already announced that we would be willing to reduce our stake in JCDecaux from the current 73 percent to facilitate a major transaction. The only major transaction in the outdoor advertising sector that would be conceivable is this one with Viacom.
What time frame do you have in mind?
That will probably take another two to three years.
Winner Decaux: «If Wall grows, we won’t have a problem—after all, we hold a 35 percent stake.»
Consolidation in Germany: The outdoor advertising market in Germany is fragmented among a large number of providers; outdoor advertising accounts for about 3 percent of the total advertising market (compared to 15 percent in Switzerland). However, a consolidation process began about a year ago when the industry leader, Deutsche Städte-Medien (DSM)—a joint billboard company owned by local municipalities—was put up for sale.
The contract was awarded to Ströer, then the industry’s second-largest player, for whom the acquisition—which was financed entirely with debt—was worth 270 million euros. As a result, Ströer/DSM has now become Germany’s largest outdoor advertising company, generating gross revenue of 548 million euros last year (including operations in France, the United Kingdom, and Turkey).
In second place is AWK-Freund with 210 million euros (as of 2003), followed by JCDecaux with 155 million euros (in Germany alone), followed by Deutsche Eisenbahn Reklame GmbH (DERG) with 125 million euros, and finally Wall with 111 million euros. It has been known since last December that another round of consolidation is likely to take place this year in the German outdoor advertising market: Deutsche Bahn plans to sell its advertising subsidiary DERG (WW 8/05). Several companies, including JCDecaux, Viacom, Ströer/DSM, Wall, and Affichage, have announced bids. (mk)
JCDecaux by the Numbers (in millions of euros)
Change 2003 2004 in %
Revenue 1543.4 1631.4 + 5.7
Operating
Result 230.1 271.6 + 18
(EBITA)
Group 40.9 78.1 + 91.0
result
Cash Flow 330.5 360.1 + 9.0
Global portfolio: 658,000 advertising spaces in 45 countries, 155 airports, 3,500 city contracts (with populations of over 10,000), 150
Contracts related to transit advertising and more.
Interview: Markus Knöpfli
WW In Germany, JCDecaux is the third-largest outdoor advertising company and holds a 35 percent stake in Wall, the fifth-largest. How do the two companies complement each other? Jean-François Decaux: Perfectly. JCDecaux operates in about half of Germany’s 15 major cities with over 500,000 residents; with Wall, we’re present in nearly all of them. The only ones still missing are Frankfurt, Duisburg, Hanover, and Essen. However, a decision is pending in Frankfurt: Wall has submitted a bid for advertising-funded restrooms. If it wins the contract, it will break into the exclusive agreement held by Ströer/DSM (see box on the right).
How does the partnership with Wall work?
I serve on Wall’s supervisory board. Unlike at Affichage, where we hold a 30 percent stake, there is no share transfer restriction clause at Wall, so our voting rights there correspond to our ownership stake.
How were you able to get so deeply involved with Wall a year ago?
We acquired an 11 percent stake in Wall three years ago. After that, Wall entered into a strategic partnership with Clear Channel (CC), our main global competitor, but that fell through. The Wall family then decided to form a strategic partnership with us. We were able to acquire CC’s 20 percent stake, as well as 50 percent of Wall USA. Specifically, this involves the city contracts with Boston and St. Louis. We’ve been responsible for marketing in Boston for a year now and have increased revenue there by over 75 percent. The reason: We can offer Boston in combination with other U.S. cities, such as Chicago or San Francisco, which goes over well with advertisers.
Is there a possibility that Wall will acquire additional shares?
Although we have a right of first refusal, the Wall family would like to maintain the current shareholder structure. So there is currently no basis for an increase in our stake.
Wall is considering an IPO. What do you think about that?
It remains to be seen whether the company can achieve the growth and scale necessary for an initial public offering.
Wall believes, however, that he will be the German market leader by 2010.
So he also wants to challenge JCDecaux's position.
Wall will never be able to achieve market leadership in Germany without JCDecaux. However, we joined Wall with the goal of working together with him, as a local partner, to achieve market leadership in Germany. If Wall grows, we have no problem with that—after all, we hold a 35 percent stake. For example, at the end of 2004, Wall won its first major contract in Freiburg im Breisgau against Ströer/DSM. The more cities Wall wins, the better it is for us as well.
Why did you decide to
Did they pull out prematurely from the sale of DSM a year and a half ago? At the time, there was an opportunity to secure market leadership and 200,000 outdoor advertising locations nationwide in one fell swoop.
That’s true, but we had the impression that the DSM sale could lead to a double sale of the cities: first, when the municipal advertising rights at the time were sold as part of the overall DSM package. And again when the individual advertising contracts expire and are put out to bid. The latter will happen soon, since the DSM concession contracts were only valid for six to seven years. That’s why we pulled back to organically capture these cities with Wall. We are now investing the money we didn’t spend back then in cities like Freiburg, which we are gradually winning over in competition with Ströer/DSM. This strategy is working.
So you turned your competitor, Wall, into a partner.
Yes, in Eastern Europe as well. In Ljubljana, the capital of Slovenia, Europlakat International (EPI)—our joint venture with Affichage—submitted a bid for the city contract three years ago, competing against Wall. EPI won, and Wall filed an appeal. However, I was then able to persuade Wall to withdraw its appeal. Now we’re one big European family: Wall, Affichage, and JCDecaux. Last year, the three of us submitted a joint bid in Hungary’s capital, Budapest, for 250 Citylight display cases and Citylight boards with rotators each—and we won together.
So was Wall's inclusion in Budapest a quid pro quo for his decision not to appeal in Ljubljana?
No, there was no such agreement. We included Wall in Budapest because the synergies were very strong.
Would you like to have Wall participate in EPI sooner or later?
Budapest was a unique situation. I don't know if something like that will happen again. In general, though, Affichage is our partner in the EPI countries—and it will remain so.
At Affichage's request, EPI withdrew from the Czech Republic two years ago. Will you be integrating Wall there?
JCDecaux continues to operate in the Czech Republic through a wholly owned subsidiary; there is no reason to change the ownership structure.
Or are you planning to use Wall to expand into countries that EPI hasn't served yet?
No, we would primarily talk to Affichage, because I feel a sense of commitment to Affichage in the spirit of the EPI partnership. For example, we are currently discussing an expansion of EPI into Romania.
Back to Germany: The sale of Deutsche Eisenbahn Reklame GmbH (DERG) is currently pending there. JCDecaux intends to bid. Do you see any competition law issues given your size and your stake in Wall?
Why? Even with Wall, our market share would be no more than 18 percent. Ströer/DSM also wants to bid, and they have a 50 percent market share. If they don't see a problem, I certainly don't see one for us either.
How did you vote on the supervisory boards of Wall and Affichage when the question arose as to whether the two companies should ever bid for DERG?
No such decisions have been made yet, as the application materials have not yet been submitted. However, Affichage has made a policy decision to double its overseas revenue. This implies that a DERG proposal will also be reviewed. As a major shareholder of Affichage, I supported this decision. After all, it’s better to have two irons in the fire than just one.
You even have three irons in the DERG fire. But are genuine competing bids possible if you sit on the board of directors at all three companies?
Why not?
Because you have a clear view of everything.
We are a major shareholder in all three companies, and a portion of our funds is being offered in each case. That is why I take a pragmatic approach: I support the offer that has the best chance of being accepted and yields the most synergies.
So you wouldn't recuse yourselves at Wall and Affichage when it comes to the DERG bid?
You obviously see a certain conflict here. I don’t. Because I’m certainly not going to tell Wall how Affichage makes its offers—and vice versa. Take the example of Budapest—it was exactly the same there at the beginning as it was with DERG: We considered how best to proceed and then decided to submit a joint bid as a trio. This is possible because we’ll also be bidding with a partner for DERG.
However, Affichage now wants to submit a bid on its own in any case and, if necessary, look for a partner only after the contract has been awarded.
To be honest, I don't think Affichage can acquire DERG on its own. Not because I question Affichage's ability, but because JCDecaux has usually only been able to win contracts in Germany when we partnered with a German company. Based on this experience, I believe that Affichage will also need a local partner.
Another look across the Atlantic: Word is that Viacom wants to sell off its outdoor advertising division. Is JCDecaux ready to pounce?
Viacom decided last week to split into two companies. In my view, this is a step toward selling off assets—such as outdoor advertising—that don’t fit its core business. What you’ve heard is therefore very plausible. Viacom also announced a loss of seven billion dollars in its outdoor advertising division a few weeks ago. They’ve likely made a huge mistake with overpriced acquisitions. Regarding the second part of your question: Yes, we’re interested in Viacom’s outdoor advertising business, because it and JCDecaux complement each other perfectly: We’re number one in Europe; Viacom is number one in the U.S. We’re number two globally; they’re number three. Our family has therefore already announced that we would be willing to reduce our stake in JCDecaux from the current 73 percent to facilitate a major transaction. The only major transaction in the outdoor advertising sector that would be conceivable is this one with Viacom.
What time frame do you have in mind?
That will probably take another two to three years.
Winner Decaux: «If Wall grows, we won’t have a problem—after all, we hold a 35 percent stake.»
Consolidation in Germany: The outdoor advertising market in Germany is fragmented among a large number of providers; outdoor advertising accounts for about 3 percent of the total advertising market (compared to 15 percent in Switzerland). However, a consolidation process began about a year ago when the industry leader, Deutsche Städte-Medien (DSM)—a joint billboard company owned by local municipalities—was put up for sale.
The contract was awarded to Ströer, then the industry’s second-largest player, for whom the acquisition—which was financed entirely with debt—was worth 270 million euros. As a result, Ströer/DSM has now become Germany’s largest outdoor advertising company, generating gross revenue of 548 million euros last year (including operations in France, the United Kingdom, and Turkey).
In second place is AWK-Freund with 210 million euros (as of 2003), followed by JCDecaux with 155 million euros (in Germany alone), followed by Deutsche Eisenbahn Reklame GmbH (DERG) with 125 million euros, and finally Wall with 111 million euros. It has been known since last December that another round of consolidation is likely to take place this year in the German outdoor advertising market: Deutsche Bahn plans to sell its advertising subsidiary DERG (WW 8/05). Several companies, including JCDecaux, Viacom, Ströer/DSM, Wall, and Affichage, have announced bids. (mk)
JCDecaux by the Numbers (in millions of euros)
Change 2003 2004 in %
Revenue 1543.4 1631.4 + 5.7
Operating
Result 230.1 271.6 + 18
(EBITA)
Group 40.9 78.1 + 91.0
result
Cash Flow 330.5 360.1 + 9.0
Global portfolio: 658,000 advertising spaces in 45 countries, 155 airports, 3,500 city contracts (with populations of over 10,000), 150
Contracts related to transit advertising and more.
Interview: Markus Knöpfli
