Ad agency giants, Publicis and Omnicom, announce merger

Publicis and Omnicom have confirmed plans for a merger of equals that would create the world's largest advertising and marketing services group by revenues, with combined revenues of $22.7 billion (€17 billion) and a market capitalisation of $35.1 billion.

The new Publicis Omnicom Group, expects to generate efficiencies of about $500m. It will retain headquarters in Paris and New York, and listings on Euronext Paris and the New York Stock Exchange, while using a Dutch holding company structure.

'Global reach'

At a press conference in Paris yesterday, Publicis chief executive Maurice Lévy and Omnicom chief executive John Wren pitched Publicis Omnicom Group as "a best-in-class communications, advertising, marketing and digital services company", uniting some of the world's largest agencies and offering clients "industry-leading breadth of services, global reach and the most highly recognised and awarded talent".

The two men confirmed plans to serve as co-chief executives for 30 months, after which Mr Lévy (71) will step up to become chairman and Mr Wren (60) chief executive.

The board, with seven non-executive directors from each company, will be chaired initially by Bruce Crawford, Omnicom's chairman, with Elisabeth Badinter, Publicis chairman and daughter of the French group's founder, as non-executive chairperson for the second year.

Analysts said the combined company’s scale, particularly in some areas of media buying, could attract regulatory scrutiny, but Mr Lévy said the initial reaction from French officials had been one of “tremendous support”. The two companies hope to close the deal by the end of this year or the beginning of 2014.

Shareholders of the companies, after special dividend payments designed to achieve an equal split, will each hold approximately 50 per cent of the equity in a transaction executives said would be tax-free to each company.Analysts said the merger would create significant value for shareholders, with a broader portfolio of agencies and a broader geographic footprint allowing it to accelerate revenue growth and find cost savings.

Profit margins

Omnicom had a market capitalisation of $16.8 billion at the close of trading on Friday and Publicis was valued at €11.8 billion. Omnicom and Publicis generated $14.2 billion and $8.8 billion in revenues respectively in 2012. Combined, they would catapult ahead of WPP, now the industry's largest operator with $15.6 billion in 2012 revenues.

A combined company would control about 40 per cent of the US ad business, more than twice WPP's share, said Brian Wieser, an analyst with Pivotal Research Group.

Mr Wieser also noted that consolidation could be a boon for the business, creating better profit margins and reducing competition for the prices charged to clients.

-(Financial Times)