The global ad industry has moved closer to a duopoly with the proposed merger of Publicis Group and Omnicom set to create the world's biggest ad network, beating out WPP. But, according to DDB Group's executive chairman for Australia/NZ Marty O'Halloran, the creation of a company valued at US$35 billion with revenues of US$23 billion is unlikely to have much of an impact on the local agency landscape.
He says it's obviously an exciting time from an Omnicom and Publicis point of view, but that's set to play out at a global holding company level, and, if the deal is approved, he says the new company will be able to offer its big multi-national clients more options. It will also have more clout negotiating media deals. Some believe this uber-consolidation will limit the options for clients and reduces competition, but O'Halloran disagrees and says it will, for example, now allow a global brand with a supply agreement to choose a combination of DDB, BBDO and Saatchi & Saatchi agencies around the world.
"I don't see a huge change in this market," he says. "The philosophy of Omnicom is to run the agency networks independently, and we don't see any change in that strategy. From a DDB point of view, it's business as usual."
In a press release, the companies said they expected to gain $500 million in 'efficiencies'. O'Halloran doesn't imagine there will be any merging of agency brands as a result of this deal, but as real estate is such a big expense for agencies, he imagines it will probably look to save some cash through co-location (Publicis is already doing this, with Zenith Optimedia recently moving in with Starcom and Saatchi & Saatchi). But he says we'll never see Colenso, DDB and Saatchi & Saatchi in the same building.
"We'll remain fierce rivals."
He says it will also be aiming to reduce double ups on IT, technology, administration, finance and other back-room functions, something O'Halloran says many other global companies in many other sectors aim to achieve. The release said there were no planned job cuts, but that seems unlikely and, according to Business Insider, which discussed the negative aspects of this deal, 60-70 percent 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. Most of those jobs will be in administrative and back-room positions."
Omnicom chief executive John Wren, one of the richest men in advertising and potentially around $70 million richer from this deal if change in control provisions trigger his stock options, said the companies have around $6.5 billion of overlapping revenue, with Coca-Cola and PepsiCo one of the biggest conflicts. Other conflicts include Nissan, Volkswagen, Mercedes and AT&T at Omnicom and General Motors, Toyota and Verizon at Publicis. O'Halloran says client information is never shared between agency networks, unless it is sanctioned by a global client (he says McDonald's, which works with DDB, OMD and Leo Burnett is a good example of that).
In a story on Reuters, Pivotal Research analyst Brian Wieser estimated that Publicis Omnicom would account for almost 20 percent of global media spending and closer to 40 percent in the United States, something that it believes will undoubtedly catch the attention of antitrust authorities.
And David Jones, chief executive of rival network Havas Worldwide, questioned the deal, saying it is a destabilising deal that makes two men happy and will not be in the best interest of clients because the new behemoth might be more bureaucratic and less nimble.
Omnicom Group Inc. (NYSE: OMC) and Publicis Groupe SA (Euronext Paris: FR0000130577) today announced that they have signed a definitive agreement for a merger of equals, creating the world’s leading company in communications, advertising, marketing and digital services, with combined 2012 revenue of $22.7 billion / €17.7 billion.
Based on closing prices on July 26, 2013, Publicis Omnicom Group will have a combined equity market capitalization of approximately $35.1 billion / €26.5 billion. The merged group of more than 130,000 employees will be exceptionally well positioned to serve clients’ evolving needs, helping them to build their brands and grow their businesses in the rapidly changing communications landscape.
The combination, which has been unanimously approved by the Boards of Directors of both companies, brings together the most extensive portfolio of best-in-class agencies offering clients the industry’s leading talent across disciplines and geographies. Publicis Omnicom Group will include such iconic agency brands as BBDO, Saatchi & Saatchi, DDB, Leo Burnett, TBWA, Razorfish, Publicis Worldwide,Fleishman-Hillard, DigitasLBi, Ketchum, StarcomMediaVest, OMD, BBH, Interbrand, MSLGROUP, RAPP, Publicis Healthcare Communications Group (PHCG), Proximity, Rosetta, CDM, ZenithOptimedia and Goodby, Silverstein & Partners, to name just a few.
Maurice Lévy, Chairman and CEO of Publicis Groupe, said: “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 behavior. This evolution has created both great challenges and tremendous opportunities for clients. John and I have conceived this merger to benefit our clients by bringing together the most comprehensive offering of analog and digital services. Equally important, it will offer our talented people new avenues for growth and success at the crossroads of strategic intelligence, creativity, science and technology.”
John Wren, CEO of Omnicom, said: “Both Maurice and I believe this new company reflects our vision of retaining the best talent, attracting an incredible roster of clients and leading innovation. Omnicom and Publicis Groupe are reshaping the industry by setting a new standard for supporting clients with integrated messaging across marketing disciplines and geographies. This combination will enable us to leverage the skills of our exceptionally talented people, our broad product offering, enhanced global footprint, and tremendous roster of global and local clients. In short, we believe this is a merger that will set our new company on a path to accelerated growth, with long-term benefits for clients, employees and shareholders.”
Mr. Wren & Mr. Lévy said jointly: “For many years, we have had great respect for one another as well as for the companies we each lead. This respect has grown in the past few months as we have worked to make this combination a reality. We look forward to co-leading the combined company and are excited about what our people can achieve together for our clients and our shareholders.”
Publicis Omnicom Group has been structured with balanced corporate governance consistent with the spirit of a merger of equals. Publicis Groupe and Omnicom’s CEOs will lead the company as co-CEOs through an initial integration and development period of 30 months, following which Mr. Lévy will become non-executive Chairman and Mr. 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.
For the first year following the closing of the transaction, Bruce Crawford, currently Omnicom Chairman, will be the non-executive Chairman of Publicis Omnicom Group. He will be succeeded by the current Publicis Groupe Chairperson, Elisabeth Badinter, as non-executive Chairperson for the second year following the closing of the transaction.
The transaction is expected to create significant value for shareholders. The new company’s broader portfolio of agencies and services and deeper geographic footprint will allow the combined company to accelerate revenue growth and create operating synergies. The future scalability and internal synergies of the combined company are expected to generate efficiencies of $500 million / €377 million.
The transaction is a cross-border merger of equals under a holding company, Publicis Omnicom Group, in The Netherlands. The Group’s operational head offices will continue to be based in Paris and New York.
The merger is expected to be tax-free to the shareholders of both companies. The transaction has been structured so that the shareholders of Publicis Groupe and Omnicom, after special dividends, will each hold approximately 50% of the equity of Publicis Omnicom Group. Publicis Groupe shareholders will receive one newly issued ordinary share of Publicis Omnicom Group for each Publicis Groupe share they own, together with a special dividend of €1.00 per share. Omnicom shareholders will receive 0.813 newly issued ordinary shares of Publicis Omnicom Group for each Omnicom share they own, together with a special dividend of $2.00 per share. In addition, Omnicom shareholders will receive up to two regular quarterly dividends of $0.40 per share if declared and the record date occurs prior to closing.
Ms. Badinter and family members as well as Mr. Lévy have entered into agreements in support of the merger, as have Mr. Wren, Mr. Crawford, and Mr. Randall Weisenburger, Omnicom’s CFO. Publicis Omnicom Group is expected to be listed on the NYSE and Euronext Paris, traded under the symbol OMC, and to be included in the S&P 500 and CAC 40.
The transaction is subject to approval by the shareholders of both companies as well as numerous regulatory approvals. It is expected to close in the fourth quarter of 2013 or the first quarter of 2014.