French strike a canny deal in $38b ad merger
Publicis seems to be getting the better half of Omnicom link, says Christopher Williams.
The $US35 billion ($38 billion) merger between Omnicom and Publicis is being presented to investors and regulators as a "merger of equals", but a glance at their finances suggests a bit of creative branding from two of the world's top advertising groups.
At $US7 billion, Omnicom's revenues in the first half of this year were $US2.6 billion greater than its French counterpart's. Pre-tax profit was $US813 million on the American side, versus $US585 million for Publicis.
Sir Martin Sorrell, chief executive of WPP, the world's biggest ad firm, congratulated his Publicis rival Maurice Levy, who will be co-chief executive of the new group for two years before stepping back to become chairman. He has negotiated a deal that offers French shareholders an equal stake in the advertising industry's new global leader, despite bringing lower revenues, lower profits and a slightly lower market capitalisation to the table. Publicis Omnicom Group will be worth about $35 billion in dual listings on the New York and Paris markets.
"You have to give every credit to Maurice, he managed to persuade him [Omnicom chief executive John Wren]," Sir Martin said after the deal was confirmed. "It's a great deal for Publicis, being a nil-premium merger."
If the deal goes through, WPP will lose its title as the world's largest advertising group by a large margin: its 2012 revenues were £10.4 billion ($17.6 billion). Mr Wren and Mr Levy will leapfrog years of gradual building through smaller acquisitions by Sir Martin, who was not completely uncritical of the deal. "If I were an Omnicom shareholder I would be extremely concerned about a merger of equals when the company I invest in has $US14 billion of revenue, while Publicis has only $US8 billion."
Omnicom shareholders may well be persuaded by promises of higher dividends after the merger, and the ability to present a combination of Omnicom and Publicis as a balanced deal will be crucial for Mr Levy to secure the co-operation of the French government, which has a record of hostility towards foreign influence on French companies. It recently blocked Yahoo!'s attempt to acquire a controlling stake in the French video website Dailymotion.
Mr Levy said as he announced the merger that he had already squared it with the Elysee Palace. "We are not owned by the French government," he said, contrasting Publicis with Dailymotion, which is 27 per cent publicly owned. "We don't expect that the French government will have anything else other than great support."
French politicians are just one hurdle. Competition regulators are bound to scrutinise the effect that combining so many of the world's top advertising agencies will have on the market.
Then there are the clients. Omnicom and Publicis create and place advertising for dozens of fierce competitors: Apple and Samsung, Pepsi and Coca-Cola, Microsoft and Google, Johnson & Johnson and Proctor & Gamble, to name a few of the biggest-spending examples on each side.
Omnicom and Publicis are already structured so their many agencies are separate enough to handle potentially awkward conflicts. The new group, headquartered in the Netherlands for reasons of "neutrality", will work in the same way, according to Mr Wren and Mr Levy.
"We're going to work extremely hard to resolve any client conflict issues with creative solutions," Mr Wren said.
All Publicis' major clients had been "extremely positive" about the merger, Mr Levy said.
However, rivals inevitably see an opportunity to pick up dropped clients and creative talent if the merger goes through.
"The best talent doesn't want to work in bigger, more impersonal organisations," said David Jones, chief executive of another "big six" agency group, Havas. "Two of our biggest and most important global wins came on the back of rivals' mergers, so we'll be chasing closely the fallout from this one."
Omnicom and Publicis made a case that their merger was a strategic ploy to increase their clout against digital giants such as Facebook and Google.
"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 of the roles of all players and profound changes in consumer behaviour," Mr Levy said.
Most observers agreed that the deal, brokered in secret by boutique firms Moelis & Co and Rothschild rather than big investment banks, made more sense as a traditional bid for scale. Marcus Anselm, a partner at media advisers Clarity, said: "I wouldn't be surprised if they decided to do the deal, got excited, then worked backwards from there."