Two of the world’s largest agency networks are merging. Omnicom owns three global advertising agency networks in BBDO, DDB and TBWA as well as media services firms OMD and PHD. The group reported worldwide revenue of $14.2 billion in 2012. Publicis owns the Leo Burnett, Saatchi & Saatchi and Publicis networks and media agencies ZenithOptimedia and Starcom Mediavest. In 2012 it reported revenue of €6, 6 billion.
The “merger of equals” will create the Publicis Omnicom Group with a market capitalization of $35.1 billion and combined 2012 revenue of $22.7 billion. Omnicom CEO John Wren and Publicis Groupe CEO Maurice Lévy will serve as co CEOs of the combined group for the 30 months, following which Lévy will become non-executive Chairman and Wren will continue as CEO. The company will have a single – tier board with 16 members, consisting of the two co-CEOs and seven non-executive directors from each company.
Publicis Groupe and Omnicom shareholders will each hold approximately 50% of the new company’s equity and it will be listed on the NYSE and Euronext Paris. ‘Future scalability and internal synergies’ are expected to generate “efficiencies” of $500 million.
The transaction is still subject to approval by the shareholders of both companies as well as numerous regulatory approvals.
Update July 29
Business Insider: Here’s The Big Downside To The Publicis-Omnicom Merger
There will be layoffs. The companies said in their press release that they expect to get $500 million in “efficiences.” That means job cuts. 60-70% of holding company operating costs are salaries. So $300 million of those efficiencies are likely to be duplicate salaries that can be cut. If you assume that the fully loaded cost of an employee is about $200,000 per year (including benefits), then that could mean up to 1,500 jobs lost.
Wren said there were about $6.5 billion in overlapping revenue on shared clients. He added that he did not believe the conflicts — in which the company finds itself serving two rival clients — would result in material losses. But tell that to Coca-Cola, which is now required to tell its marketing secrets to Publicis’ Leo Burnett, all the while knowing that Pepsi is listening to advice from Omnicom’s TBWA. These two agencies are now a mere phonecall apart.
“They are making it clear that a primary motive for the merger is achieving scale in media buying,” said Dominic Proctor, global president of WPP’s GroupM media unit. “However, neither Omnicom nor Publicis was able to bring their investment teams together effectively as individual companies, so it will be fun to see if they can now do it together. Getting scale in media investment management is critical for clients, but it only works if it all joins up. We welcome a competitor in this space. Media investment management relies heavily on scale, but scale counts for nothing if it continues to be disparate.”
“During the press conference, Lévy and Wren did not seem overly concerned about anti-trust hurdles despite the fact the deal faces scrutiny in 41 countries. Wren said, “We don’t expect anything overwhelming.” He also said he didn’t know what divestitures might be necessary as part of that review, noting that the companies had been well advised by “very expensive attorneys.” What’s more, he described talk that Publicis Omnicom Group would control 40 percent of U.S. advertising as “fantasy.””
“The transatlantic tie-up of Publicis Groupe SA (PUB) and Omnicom Group Inc. (OMC) pushes the reigning king of adland, WPP Plc’s Martin Sorrell, into a spot he hasn’t been in in over four years: runner up.”
““What will WPP say in a world where they’re not the biggest? A version of Omnicom agency DDB’s line: When you’re only No. 2, you try harder?” said Nick Jefferson, managing director at marketing and advertising company Gyro in London.”
“Smaller agencies will gleefully point to the 130,000-employee behemoth as all that’s wrong with the mechanized, commoditized ad world. The sheer amount of bureaucratic infighting during an integration will provide an opening for rivals. What’s more, the clear conflicts this presents will provide an opening for WPP and other rivals to swoop in to woo away big clients. Brad Kay, president of independent shop SS&K, summed it up this way: “To-do’s for small, independent agencies: 1) review client list of Omni-Pub; 2) identify top talent; and 3) exploit six months of utter distraction.””
“What’s funny about these kind of gigantic corporate chess moves is they feel so abstracted from the day-to-day reality of the business. Advertising is actually a very simple business. Agencies help their clients grow their businesses by building great brands and finding new customers. And yet very often the maneuvers of the ad-holding companies — adding complexity upon complexity, reshuffling org charts, etc. — do very little to help achieve this. It’s hard to see how Publicis Omnicom will improve the work their agencies do.”
Update: July 28
“First there’s the duopoly the merged entity will create – creating a sector essentially owned by two holding companies in WPP and whatever the new Publicis / Omnicom group will be called.”
“Perhaps the largest conflict with the merger is Pepsi / Coca-Cola. How will that be handled? Those of us that have been in large agency groups know how weak conflict preparation and defence can be across same-group-owned companies, let alone two merging giants.”
“I’ve been worried for a few years now that true entrepreneurialism is dying in the industry. Where is the incentive to grow and build a business to compete with the biggest when the biggest are so gargantuan that there’s no chance you’ll ever catch up?”
“I’m not sure this is in the best interests of their clients or their talent,” Havas chief executive David Jones said in a statement. “Clients today want us to be faster, more agile, more nimble and more entrepreneurial, not bigger and more bureaucratic and more complex.”