U.S., French Ad Agency Conglomerates Omnicom, Publicis to Merge

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Publicis Group CEO Maurice Levy and Omnicom Group CEO John Wren signing a contract in Paris on July 28.

UPDATED: The combined Publicis Omnicom Group would be the world's largest ad firm with $22.7 billion in revenue and more clout to negotiate ad rates with media and entertainment companies.

LONDON _ U.S. and French advertising agency conglomerates Omnicom Group and Publicis Groupe said Sunday that they would merge to create an ad giant with annual revenue of $22.7 billion and a stock market value of $35.1 billion.

The merger of equals will see shareholders of both companies own 50 percent each of the combined firm that will be called Publicis Omnicom Group. It will be bigger than Britain's WPP, which has been the ad industry's biggest player so far.

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So far, Omnicom and France's Publicis had been the second- and third-largest ad companies, respectively, based on revenue. The companies own such well-known ad agencies as BBDO, TBWA, Leo Burnett and Saatchi & Saatchi, as well as Publicis' media buying firm Starcom MediaVest Group.

Analysts have in the past said that any ad industry consolidation could have an effect on media and entertainment industry companies given that they would deal with bigger entities with more leverage.

"I suspect most folks don't have any sense of what could hit them," said Pivotal Research analyst Brian Wieser. "There are now material risks to revenue growth forecasts for any media company whose revenue base is dependent on ad revenue, large brands and ad agencies."

Pointing to an ad buying giant that has bought big ad inventories to get good rates and then allocated it to clients, he added: "There is the risk that they could embrace a GroupM-type media buying style. The  merged company has opportunities to secure superior pricing if they organize things differently. Most marketers are focused on driving cost down."

In U.S. network TV ad buying, fewer than 200 companies account for 90 percent of revenue, Wieser explained. "Almost all work with global agencies, of which this is now 40 percent," he said.

The two companies represent such big-name advertisers as tech giant Apple, beverage powerhouses Coca-Cola and PepsiCo and consumer products conglomerate Procter & Gamble. Some of them have been big regular advertisers during the Super Bowl. And Pepsi and Coke have been sponsors of The X-Factor and American Idol.

John Wren of Omnicom and Maurice Levy of Publicis will serve as co-CEOs.

Regulators in the U.S. and Europe, as well as the French government, must approve the deal. The French government recently blocked an attempt by Yahoo to acquire a majority stake in French online video giant Dailymotion, saying it didn't want a French success story to fall into foreign hands.

That could affect the ad revenue of media and entertainment companies. "Omnicom and Publicis Groupe are reshaping the industry by setting a new standard for supporting clients with integrated messaging across marketing disciplines and geographies," said Wren in a statement.

The deal would give the combined company more leverage in getting clients better ad rates for TV, online and print campaigns, said one industry observer.

Wieser, in a first comment, also suggested that WPP, U.S. ad giant Interpublic, France's Havas and Japanese ad company Dentsu might now explore possible deals.

"The communication and marketing landscape have 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," said Levy.

He added: "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."

Among other digital deals, Starcom signed a multi-year ad and data tracking deal with Twitter earlier this year.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai