July 29, 2013

Merger pending for global ad giants

The result would be the world's largest advertising firm – with repercussions for the entire industry.

The Associated Press

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, where they each have ramped up operations to counter lackluster growth in Europe.

But although a combined firm will allow for more pricing power in general, the decrease in competition could present regulatory hurdles in the U.S. 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.

Omnicom Group Inc., based in New York, owns BBDO Worldwide, DDB Worldwide Communications Group and TBWA Worldwide, among other agencies. Paris-based Publicis Groupe SA 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 non-executive chairman of the new company. He will be succeeded by Elisabeth Badinter, the Publicis Groupe chairwoman, and daughter of its founder, for the second year.

Levy is slated to take the non-executive chairman's seat after 30 months, leaving Wren to continue as sole CEO afterward.

One concern is whether Omnicom and Publicis can strike a harmonious balance of power.

"It's not clear yet who really is in the driver's seat," Wieser said.

The combination has been approved by the boards of both companies, but remains subject to regulatory approval in both the U.S. and Europe, and to a vote by shareholders of both firms.

The combination could have a domino effect on the industry, spurring marriages between other ad giants, said Michael Corty, an analyst at Chicago-based Morningstar.

"Within the ad agency industry, this is potentially an earthquake deal," Corty said.

 

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