Omnicom, Publicis merge, create $23b umbrella group

PARIS: Publicis Groupe and Omnicom Group said Sunday morning that they will merge to form the world's largest marketing umbrella firm, a move that would trim the "big four" advertising holding companies to the "big three."

PARIS: Publicis Groupe and Omnicom Group said Sunday morning that they will merge to form the world's largest marketing umbrella firm, a move that would trim the “big four” advertising holding companies to the “big three.”

The resulting holding company, which will be known as Publicis Omnicom Group, had combined 2012 revenue of $22.7 billion and a total market capitalization of $35.1 billion as of the end of day on Friday. It will surpass WPP Group, which reported $16.5 billion in 2012 revenue, as the largest holding company in the world.

The leaders of Omnicom and Publicis, John Wren and Maurice Levy, respectively, will serve as co-CEOs for 30 months, after which Levy will become non-executive chairman. Wren will serve as the company's sole chief executive at that point. The deal is expected to close at the end of this year or beginning of 2014, Levy said at the Sunday morning Paris press conference announcing the merger.

Wren said talks started about six months ago in casual conversation.

“I've always respected [Levy], but during those six months, we had many opportunities to test whether we trusted each other or not, and it proved...possible, and that led us to today,” he said.

Levy said their goal was to create “a new company for a new world,” citing behavioral and technological changes in recent years.

The combined company's headquarters will be in The Netherlands, and its former New York and Paris bases will serve as operational head offices.

Publicis Omnicom will have a single-tier, 16-member board. Omnicom Chairman Bruce Crawford will serve as non-executive chairman for the first year after the deal closes. Publicis chair Elisabeth Badinter will succeed him in the second year.

Publicis said in a statement that the merger is expected to generate efficiencies of $500 million, but Levy declined to provide details about how it plans to do that at the press conference.

The merger faces regulatory approval in various countries and is subject to shareholder votes.

The combined company will trade on both the New York Stock Exchange and Euronext Paris with the symbol OMC.

Organizational challenges
The combination would see Publicis' MSLGroup PR network brought under the same holding company as Omnicom's FleishmanHillard, Ketchum, and Porter Novelli, among others. Omnicom houses its PR agencies in its Diversified Agency Services division, while MSL stands as Publicis' primary PR network. The CEOs did not address agency structuring at the press conference.

Omnicom's PR firms reported an organic year-on-year revenue increase of 3.8% in the second quarter of this year to $336.1 million. Overall, the company's global revenue increased 2.1% to $3.6 billion in Q2. Net income grew 2.4% to $289.5 million.

While Publicis did not break out its PR revenue in the second quarter, it reported overall year-over-year organic revenue growth of 5% in Q2 to $2.3 billion. Net profit was up 15% to $411 million.

On the advertising side, Publicis owns and operates firms such as Leo Burnett and Saatchi & Saatchi, while Omnicom runs BBDO and TBWA, among others.

Potential conflicts
Media reports have speculated that client conflicts could become a major problem for the combined company. For instance, PepsiCo is a major client of Omnicom, while Coca-Cola works with Publicis agencies.

Both CEOs noted they have worked through mergers, and client concerns about them, in the past.

“We will continue to work hard for our clients,” said Wren. “We will make every effort we can to make sure clients are happy...we will have more resources than either has individually.”

“Do I expect to have difficulties? Yes. Do I expect to have solutions? Yes,” Wren added, saying he doesn't foresee a scenario that would derail the merger.

Regulatory hurdles
The deal requires approval in both the US and France, among other countries. In response to a question about the French government's stance on the merger, Levy replied that it has been initially supportive.

“We are a private company; we are not owned by the French government, and yet we are one of the iconic companies in France,” he said. “Having informed them, the reaction we got from everyone was of tremendous support, so we don't expect the French government will have anything else than great support.”

Wren added that both holding companies consider themselves global entities, rather than identifying with a particular country.

“I gave up my American headquarters to become European,” he said, referring to the combined company's new base in the Netherlands.

Other agency heads react
Leaders of other holding companies panned the merger over the weekend and said it will benefit their own firms. Havas CEO David Jones told Reuters, “I'm not sure this is in the best interest of their clients or their talent.”

“Clients today want us to be faster, more agile, more nimble, and entrepreneurial, not bigger and more bureaucratic and more complex,” he tweeted.

MDC Partners chief Miles Nadal tweeted that the deal is “fabulous for MDC and our partners” and that “after the big deal, MDC's reputation as ‘the place where great talent lives' just got a huge opportunity. We will get even better.”

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