Bigger than WPP: Omnicom and Publicis merge to take on Google in digital ad battle

30/07/2013

France's Publicis and America's Omnicom have merged to create a marketing company bigger than WPP, vowing to take on Google in the battle for online ad revenues.

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The deal between the French and US multinational will be worth nearly $23bn in revenues, beating previous sector leader WPP's $10.4bn.

Omnicom chief executive John Wren and Publicis Groupe boss Maurice Levy will become joint CEOs of the new company, now known as the Publicis Omnicom Group.

Each firm's shareholders will hold about 50% of the new firm, which will be listed in Paris and New York and will employ more than 130,000 people.

Among the well-known industry names that are in the combined company are BBDO, Saatchi & Saatchi, and Leo Burnett.

At a joint press conference in Paris that followed a rooftop signing on top of Publicis's Champs Elysées headquarters overlooking the Arc de Triomphe, the executives announced an alliance which had been first proposed six months ago by Lévy to Wren as a joke at a social encounter.
However, the new ad behemoth will be serious in its attempt to stem the declining power of traditional marketing communications in a world now dominated by Google and Facebook.
"The communication and marketing landscape has undergone dramatic changes in recent years including the exponential development of new media giants, the explosion of big data, blurring of the roles of all players and profound changes in consumer behaviour," said Levy.

"John and I have conceived this merger to benefit our clients by bringing together the most comprehensive offering of analogue and digital services."

Publicis Groupe shareholders will receive one share of the new Publicis Omnicom Group for each Publicis share they own and a special dividend of 1 euro per share.

Omnicom shareholders will receive 0.813 shares of Publicis Omnicom Group for each Omnicom share they own, together with a special dividend of $2 per share, plus quarterly dividend payments.

The companies see savings of $500m from the merger, and the deal is expected to be finalised by the end of the March 2014. They say the merger should be "tax-free" and the holding company based in the Netherlands.

Client conflict an issue?

Commenting on the deal, Andy Collins, a partner at mergers advisory firm Results International, said: "This ‘merger of equals’ is great news overall for shareholder as bringing the two groups together will deliver cost savings and improve overall profitability. Growth has been slowing down at both Publicis and Omnicom and their business models where growth is delivered by acquisition is challenging in mature markets that offer little scope for growth. For sure the deal will improve the overall margins in both businesses and is therefore a timely manoeuvre to improve shareholder value. There is likely to be a short-term win in group profit and an uplift in share price though whether it will ultimately deliver shareholder value in the medium or long term is unclear. There may be a loss of major client accounts which will make the integration pretty sticky. Therefore long term value remains to be seen.

“The other issue is one of egos and personal dynamics. It’s pretty likely to be the case that Levy wanted to do another big deal before he retires and this is a great epitaph for him.

“Another major issue is one of regulatory approval. If it gets the green light, it will certainly usher in a period of uncertainty for the agencies involved. Client conflict will be a massive issue and the challenges of putting the groups together and the disruption this will cause is not to be under estimated. It will slow down further acquisitions as the group necessarily becomes inward-looking for a period of time, sorting out how to make the combined businesses work in practice.

“The deal will cause massive ripples and a period of uncertainty in the industry and possibly unleash a drive for scale. IPG, Havas and Dentsu may all start manoeuvring for such scale. Will we see further consolation? Quite possibly. In recent times there has been rumour around IPG potentially being courted by its larger rivals, so there will be renewed speculation about IPG. One thing’s for sure and that is there will be lots of upheaval and uncertainty around the board room tables of the other large players. Should they stay independent or should they pursue a drive for scale? The months ahead will be fascinating ones.

“Clearly the deal also means that clients will have less choice but it may signal an opportunity for the smaller groups as not all clients will want to place their business with a company of the size of Publicis/Omnicom. IPG, Havas, Dentus, Aegis etc may represent an attractive alternative to WPP and this massive new group.

“And then what of Sir Martin Sorrell and WPP? It’s well knows that there is no love lost between him and Levy. Will Sir Martin have to do another deal to regain his position as global leader by doing a deal with IPG? Another clever tactic might be to pick up or even actively court some of the big client accounts that could fall out of Publicis/Omnicom over the next 12 to 18 months.

“And then clearly there will be huge speculation around IPG. It has lots of cash on the balance sheet but a big question mark over where the growth in shareholder value is going to come from going forwards. I suspect the IPG share price will jump on the back of the Publicis/Omnicom news. There are two likely scenarios. One, it could be seen as a possible takeover target; two, it remains independent and picks up some of the major client accounts that are likely to fall out from this huge deal. Either would be good for IPG shareholders. “

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