Omnicom and Publicis merger creates communications giant

A merger between France's Publicos and America's Omnicom has created the world's biggest marketing and advertising powerhouse, ending WPP's four-year dominance of the industry with an alliance vowing to hold its own against the digital media giants of Silicon Valley.

Billed as a "merger of equals", the combination of the second largest marketing group, Omnicom, with its third place competitor Publicis will create a multinational with nearly $23bn (£15bn) in revenues and a stockmarket value of $35bn (£23bn).

Publicis Omnicom Group, as the holding company will be known, will have dual headquarters and listings in Paris and New York but will be registered in the Netherlands – for reasons of "neutrality" rather than any tax advantage, said Publicis chief executive Maurice Lévy.

The company's roster of agencies will include Saatchi & Saatchi and BBDO, with McDonald's and household goods firm Procter & Gamble among the top clients. The deal will make potentially uncomfortable bedfellows of advisers to some of the world's leading brands. Omnicom's most prized clients include PepsiCo and Apple, while Publicis handles marketing campaigns for Coca-Cola and Samsung.

With more than 130,000 employees, Publicis Omnicom will be jointly led by John Wren, Omnicom's chief executive since 1997, and Lévy, the chief executive and chairman who has transformed Publicis into an international operator since taking over in 1987.

The two men will be co-chief executives for 30 months, before Lévy steps back to become chairman, leaving Wren as the lead executive. The company will have a single tier board of 16 members including seven non-executive directors from each company, plus Lévy and Wren.

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.

But its intent is a deadly serious attempt to create a counterpoint to balance the dwindling power of traditional marketing communications in a world now dominated by Google and Facebook, whose audiences are numbered in billions, dwarfing the influence of individual television channels and magazines.

Lévy said in a statement: "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 the roles of all players … John and I have conceived this merger to benefit our clients by bringing together the most comprehensive offering of analogue and digital services."

Sir Martin Sorrell's appetite for acquisitions helped Britain's WPP overtake Omnicom as the biggest marketing group in 2009, but its annual £10.4bn in revenues and market capitalisation of £15bn will be overshadowed by the new entity.

Sorrell said that far from being a US takeover, the deal represented a victory for the French: "It's an extremely bold and brave and surprising move. It's a great deal for Publicis because they effectively get control with a nil premium merger. Time will have to tell if the cultures click."

Omnicom's revenues are £9.6bn, much larger than the £5.7bn generated by Publicis. However, the US group is less profitable, with 15% margins compared to 18% at Publicis, which means Publicis shareholders have been able to secure half of Omnicom without paying a premium for the privilege. Publicis chair, Elisabeth Badinter, who is the daughter of the company's founder Marcel Bleustein-Blanchet and still owns 11% of the group, will succeed Omnicom non-executive chair, Bruce Crawford, in chairing the new company in the second year.

The deal creates a two-tier industry, with Publicis Omnicom and WPP far ahead of Interpublic Group, Dentsu and Havas in their sheer scale, and analysts are now speculating whether WPP will be persuaded into doing a deal to regain the top slot. "Further consolidation in our industry is inevitable," said Sorrell. "But there will be major opportunities for WPP organically because this is going to cause a lot of turbulence in the industry, both among clients and people."

Andy Collins, a partner at mergers advisory firm Results International, said: "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 underestimated. The other issue is one of egos and personal dynamics."

The companies promised their shareholders $500m in cost savings but played down the possibility of job losses. The deal is expected to close at the end of 2013 or in the first quarter of 2014.An executive at a leading institutional investor in both companies said it was "sceptical" about the deal, saying it "feels grandiose and ambitious".

Approval must be sought from regulators in up to 46 markets, with the most crucial the United States, where the group will control about 40% of advertising spending, according to Pivotal Research Group analyst Brian Wieser. "The industry as we have known it would arguably be too concentrated for many regulators to tolerate," said Wieser.

Wren dismissed fears of regulatory challenge, saying: "We've had very professional very expensive attorneys advising us on what we may or may not expect. Nobody has raised the red flag." He added that the merger was not a US takeover. "I give up my American identity in this merger and I'm becoming European. The clients are global."

Marketing match

Publicis

Publicis Groupe was founded in 1926 by Marcel Bleustein-Blanchet in Paris after he left his job as a salesman in the family furniture shop. It now employs 60,000 people and controls some of the world's biggest advertising budgets through media buying agencies including ZenithOptimedia and Starcom MediaVest. Coca-Cola is amongst its most prized clients, with Publicis advised on its high-profile sponsorship of American Idol and the 2012 Olympics.

Its family of agencies includes Saatchi & Saatchi, Bartle Bogle Hegarty and Leo Burnett, which created the "We All Make the Games" campaign for McDonald's during the Olympics. In the digital arena, it owns Razorfish, which acts for Samsung and has helped push digital revenues to 33% of group income. Clients include Nestle, Walt Disney and Mars. In a sign that rival firms do not always object to sharing advertising groups, Mercedes-Benz, Nissan, Toyota and Volkswagen are among the car brands it worked for last year.

Omnicom

John Wren, who earned $14.8m (£9.6m) in 2012, was among those who helped found Omnicom in 1986. The group depends on the US for 52% of its revenues, but its advertising agencies are global. The stable includes BBDO, which employs 15,000 people in 79 countries, and DDB Worldwide, which looks after Band-Aid and Neutrogena owner Johnson & Johnson, and the oil major ExxonMobil. It was DDB's Munich subsidiary, Heye & Partner, that devised the "I'm Lovin' It" slogan for McDonald's.

Omnicom's TBWA\Worldwide agency counts Apple, Absolut vodka, Sony PlayStation, Michelin, Mars and Visa as clients, and employs 11,000 people in 77 countries. The company has a decades-old relationship with PepsiCo, for whom it created the slogan "The Choice of a New Generation", and for which it negotiated sponsorship of X-Factor programmein the US and last year's Super Bowl halftime show with Beyoncé. As well as McDonald's, Omnicom and Publicis share household goods firm Procter & Gamble, and cosmetics group L'Oreal as clients.

(Published by The Guardian – July 28, 2013)