Experts say merger likely to pass antitrust hurdles

NEW YORK: The Publicis Groupe-Omnicom Group merger is likely to pass regulatory hurdles, say experts, who add that it will create a mix of benefits and drawbacks for the company and its clients.

NEW YORK: The Publicis Groupe-Omnicom Group merger is likely to pass regulatory hurdles, say experts, who add that it will create a mix of benefits and drawbacks for the company and its clients.

Michael Corty, senior equity analyst at investment research firm Morningstar, says he believes the merger of the two marketing services giants will be approved by regulators, but not without objections.

Anytime the “No. 2 and No. 3 players combine,” opposition will be voiced, he says.

Publicis, the world's third-largest advertising company pre-merger, and Omnicom, which is ranked second, have combined revenue of nearly $23 billion. The combination of the two holding companies would usurp the top spot from rival WPP Group.  

The two umbrella groups announced their merger plans on Sunday. Combined, they have total market capitalization of $35.1 billion as of the close of business last Friday.

The deal must get antitrust clearance from authorities in more than 40 countries, including the US and France.

Corty adds that if the merger goes through, WPP and Interpublic Group will have to decide if they are comfortable with their capabilities or if they will make a move to compete against the newly formed Publicis Omnicom Group powerhouse.  

“Logic would say that someone has to look at IPG as a possible acquisition target,” he says.

Similarly, Brian Wieser, senior research analyst at Pivotal Research Group and former CMO of Simulmedia, notes that WPP and Dentsu could be buyers, Havas could be a buyer or seller, and IPG “is definitely in play to be sold.”

Interpublic chairman and CEO Michael Roth said in a memo to employees on Monday that “there is the question of whether we intend to link up with another agency in order to remain competitive.”

“As this weekend's surprising news shows, there's no telling what might take place, but we don't see the need for major M&A to keep delivering on our plan to move Interpublic forward,” he said in the memo. “We've proven that we have the talent and agency brands to compete and win across our offerings.”

WPP Group CEO Martin Sorrell told PRWeek via email on Sunday that “further consolidation in our industry was inevitable, as we have said on many occasions.”

Procter & Gamble, which works with both Omnicom and Publicis agencies, said in an emailed statement that “with the news of the merger, we're looking forward to working with the Publicis Omnicom Group leaders to continue to build our brands in the future.”

Rival CPG giant Unilever, which works with Omnicom, was not available for comment.

General Motors' Cadillac brand, which works with Omnicom's FleishmanHillard on PR, said the company has “no concerns when it comes to our work with Fleishman.”

Wieser adds that clients will likely be happy about cost savings from the merger and “will generally be unconcerned about conflicts.”

Larry Chiagouris, professor of marketing at Pace University's Lubin School of Business, says some clients will not like the merger and some will find benefits to it. Unhappy clients will not like having competitor brands under the same umbrella company, he explains, and they may feel that such a large organization will not be as attentive or sensitive to their needs.

On the other hand, Chiagouris says some clients may see an upside to the merger, such as more resources and technological advances.

Both PepsiCo, a major client of Omnicom, and Coca-Cola, which works with Publicis agencies, declined to comment on the deal.

One major concern about potential conflicts would be the group's ability to facilitate coordinated PR or marketing strategies in one industry or for one line of business, explains Bert Foer, president and founder of the American Antitrust Institute.

“If they are able to help coordinate industry-wide strategies for [competitive] companies, it could be violating the antitrust laws. So if the merger will facilitate that, then that's one basis on which it might be stopped,” he says.

Foer adds that he thinks the deal will lead to antitrust reviews in various countries to determine whether it is anti-competitive.

The merged company is estimated to account for nearly 20% of global media spending and 40% in the US.

If a company has more than 30% to 35% of market share, it will be looked at carefully by antitrust agencies, says Allen Grunes, antitrust lawyer at GeyerGorey, who previously worked in the US Justice Department's antitrust division.

Grunes adds that antitrust agencies look at cost savings “skeptically and want proof” that the efficiencies are merger-specific and cannot be accomplished outside of the deal.

The new holding company expects to generate efficiencies of $500 million, its co-CEOs-to-be said Sunday.

“It's going to be a tough, rigorous analysis, and various theories will be tried. At the end of the day, the question will be, ‘Is there a coherent story that this merger lessens competition?' If so, then the Justice Department will challenge it,” said Grunes. 

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