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Last updated: July 28, 2013 8:14 pm
The historic merger between Publicis and Omnicom that will create the world’s largest advertising and marketing services group by revenues is a bold bet that size matters in a new media world that is increasingly controlled by technology.
Gone are the advertising’s Mad Men days when creative shops such as Publicis’ Leo Burnett developed campaigns for the Marlboro Man. Today’s marketers are scrambling to connect with consumers amid the proliferation of media and mobile devices.
A new crop of companies, ranging from internet groups such as Google and Amazon to marketing newcomers such as Salesforce.com and Accenture, threaten to cut traditional advertising groups out of the equation. They offer marketers revolutionary technologies to pitch their messages to customers in real time on television, the internet, smartphones and digital billboards with analytical systems designed by actual rocket scientists.
“Lines have blurred completely. There are new competitors coming in every single day,” John Wren, the chief executive of Omnicom who will become co-CEO of the new entity, told the Financial Times. “The pace of change which is occurring today is going to get faster, not slower.”
Publicis and Omnicom are billing the tie-up between the two companies, which had combined revenues of $22.7bn in 2012 and a combined market capitalisation of $35.1bn (including adjustments for fully diluted stock counts), as a “powerful solution” for their clients that will create a “new standard” for the industry.
“Size will matter,” Maurice Lévy, the chief executive of Publicis who will be the new group’s other co-CEO, told the FT. “What is true today is really not true tomorrow, and we have to be prepared for that.”
Mr Wren, 60, said that both groups have a history of striking ad-buying and ad-technology partnerships with new digital giants such as Google and Amazon and that the merger would create more powerful solutions for clients. “None of us are going to be speaking about anything that isn’t digital three to four years from now,” he said.
Indeed, traditional media outlets such as television remain important and maintaining prowess in both old and new media will be essential.
Standing on the rooftop of Publicis’ headquarters at the top of the Champs Élysées on Sunday afternoon, and with a picture-postcard view of the Arc de Triomphe, Mr Lévy, 71, told the FT how the idea of the merger began.
“This started on this roof … the Arc de Triomphe and, he [Wren] said, “this is priceless”, and I made a joke. And we started to think, and so it is from a joke that everything started. But it started here, on this very roof.”
The two executives described on Sunday how those conversations gradually become more serious, leading to deal which stands as the advertising industry’s largest to date. Advisers worked in secret for months to resolve everything from the Dutch holding company structure, to the listings, to the board composition. The two men confirmed plans to serve as co-CEOs for 30 months, after which Mr Levy will step up to become chairman and Mr Wren will become sole CEO.
“Who is at the top, we don’t care any more,” Mr Lévy said. “We want to put our fight in achieving fantastic success and achieving great leadership.”
The companies hope to close the deal by the end of this year or the beginning of 2014, but it is likely to face criticism and regulatory scrutiny.
On Sunday, CGT, the communist-backed trade-union federation, called the proposed merger “a financial mega-operation rather than a relevant and complementary fusion”. It demanded “intervention from the government and competition authorities to avoid monopolies in France and across the Atlantic”.
Mr Lévy and Mr Wren said that they were not expecting any red flags that would prevent the deal from going forward.
Some rivals questioned the two men’s plans to find $500m in “efficiency” benefits. “They can’t get $500m of synergies unless they break some eggs,” one said.
Others were just stunned that such a large deal was happening at all. After news of the talks first broke, David Jones, chief executive of competitor Havas, tweeted “oh wow just saw a flying pig”.
“Clients today want us to be faster, more agile, more nimble and more entrepreneurial not bigger and more bureaucratic and more complex,” Mr Jones told the FT. “I doubt you’ll find a single client who said: ‘We wish you were bigger and we were less important to you.’”
Some industry analysts forecast a wave of consolidation to follow, affecting WPP, Havas, Interpublic and Dentsu. Sir Martin Sorrell, the chief executive of WPP, played down expectations that he would do a knock-on deal, instead playing up expectations that the Publicis-Omnicom merger would cause fallout among clients and staff.
“An equilibrium may be starting to be established which will generate further significant opportunities for WPP organically,” he said.
However ad holding companies resolve client conflicts through assigning rival accounts to different agencies under their umbrella.
Mr Lévy and Mr Wren said they had spoken with the chief executives and chief marketing officers of several of their clients. They had wished the deal luck and did not expect such concerns to pose an issue.
Added Mr Wren: “Do I expect to have difficulties? Yes. Do I expect to have resolutions? Absolutely.”
Additional reporting by Rob Budden and Anousha Sakoui.
Coke and Pepsi, Nestlé and Mars, Microsoft and Google, AT&T and Verizon – these bitter pairs of competitors will now find their advertising and marketing needs handled by one company, if regulators and shareholders clear the path for Publicis and Omnicom to unite, write Andrew Edgecliffe-Johnson and Anousha Sakoui.
The combination of Omnicom agencies such as BBDO Worldwide, DDB Worldwide and TBWA Worldwide with Publicis brands including Saatchi & Saatchi, Leo Burnett, Starcom MediaVest Group and Vivaki will have profound implications for clients and competitors alike.
The two companies, which already share clients including McDonald’s, Procter & Gamble and L’Oréal, called clients to reassure them about “Chinese walls” protecting their confidentiality, even as rivals forecast fallout. One person close to the deal said the merger plan involved keeping both PepsiCo and Coca-Cola, but “losing one is not a dealbreaker”.
Omnicom, valued at $16.8bn at the close of trading on Friday, and Publicis, valued at €11.8bn or $15.7bn, will easily pass the current market leader, WPP, with a market capitalisation of $24bn.
Sir Martin Sorrell, WPP’s chief executive, played down any pressure to respond with acquisitions of his own, and the pressure may be more acute at smaller rivals such as Interpublic, Havas and Dentsu.
Brian Wieser of Pivotal Research raised his target price for Interpublic from $16 to $21. “Interpublic will immediately be considered to be in play,” he said, pointing to WPP as the most likely buyer.
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