Omnicom and Publicis in merger deal
Tie-up creates biggest ad firm
PARIS: Omnicom Group Inc and Publicis Groupe SA say they are combining in a ‘‘merger of equals’’ that will create the world’s largest advertising firm, one worth more than $35 billion.
The combined company will be called Publicis Omnicom Group and be jointly led by Omnicom CEO John Wren and Publicis CEO Maurice Levy as co-chief executives. The move is designed to bolster the companies’ focus on growing Asian and Latin American markets such as China and Brazil, where they each have ramped up operations to counter lackluster growth in weak European markets.
But although a combined firm will allow for more pricing power in general, the decrease in competition could present regulatory hurdles in the US and Europe. Client conflicts also could be an issue, as rivals such as Coca-Cola Co, PepsiCo, McDonald’s, Yum Brands’ Taco Bell, Johnson & Johnson and Procter & Gamble now find themselves under the same umbrella.
Rich Tullo, an analyst at Albert Fried & Co in New York, predicted pushback from regulators in both the US and France.
The US could be wary of one company controlling such a large portion of the market, he said, while in France, authorities might not take warmly to any Americanisation of a company that is a bright spot in the bruised French economy.
Tullo also questioned whether the combined company could live up to promises like the $500 million in cost savings touted with the announcement, given Europe’s shaky financial condition.
‘‘That sounds like financial alchemy, if you ask me,’’ he said.
Omnicom Group, based in New York, owns BBDO Worldwide, DDB Worldwide Communications Group and TBWA Worldwide, among other agencies. Parisbased Publicis Groupe runs its namesake agency as well as Leo Burnett Worldwide, Saatchi & Saatchi and DigitasLBi. Their merger creates a company with combined annual revenue of about $23 billion, leapfrogging them over current London-based industry leader WPP Plc.
For the first year, Omnicom chairman Bruce Crawford will serve as nonexecutive chairman of the new company. He will be succeeded by Elisabeth Badinter, the current Publicis Groupe chairwoman, and daughter of its founder, for the second year.
Levy is slated to take the nonexecutive chairman’s seat after 30 months, leaving Wren to continue as sole CEO from that point.
Omnicom, which also owns public relations firms such as FleishmanHillard, Porter Novelli and Ketchum, reported 2012 profit of nearly $1 billion on revenue of $14.22 billion.
Earlier this month, the Madison Avenue giant posted second-quarter earnings that topped analysts’ average forecast, though revenue growth of 2% fell just short of expectations.
Founded in 1986, Omnicom generates just over half of its revenue from US clients, and about one-quarter from European and British markets com- bined.
Omnicom will benefit from Publicis’ strategic shift in the last few years toward digital operations, as the French company beefed up its digital marketing profile with the acquisitions of Digitas, Razorfish, Rosetta, Big Fuel and LBi. Publicis, which had revenue of $8.78 billion in 2012, had targeted generating 75% of its revenue in digital and fastgrowing countries by 2018, according to a recent investor presentation.
Analysts say the deal also represents even more consolidation in an industry that is already dominated by just a few players, a fact that might not sit well with US regulators.
If the Omnicom-Publicis combination goes through, the combined company would account for nearly 40% of the US ad industry, twice as much as the nearest competitor, WPP, according to Brian Wieser, an analyst at Pivotal Research Group in New York.
Wieser said on Sunday the deal came as a surprise to many in the industry. Omnicom, he said, ‘‘has always been viewed as too large to get any larger.’’
The combined company will have more than 130,000 employees.
One concern is whether Omnicom and Publicis can strike a harmonious balance of power — something that can be difficult in mergers of similarsized companies.
‘‘It’s not clear yet who really is in the driver’s seat,’’ Wieser said. ‘‘That will emerge over time.’’