In a seismic change that will reshape the advertising world, Publicis and Omnicom confirmed plans to merge into a global marketing communications leader with almost $23 billion in revenue and half of the industry's networks under one roof.
Both execs stressed the new company, which will be based in the Netherlands and maintain respective operating headquarters in Paris and New York, is a combination of equals. But like the name of the new company, today’s Paris press conference was French-led, from Publicis Groupe chief’s Maurice Lévy’s opening remarks and leadership of the event to much of the session conducted in un-translated French.
The new Publicis Omnicom Group began as a “casual conversation” six months ago when Lévy posed the idea to Omnicom CEO John Wren and the two continued to consider the possibilities and stayed in touch. “It wasn’t calculated,” said Lévy, who said he mentioned it to Wren during a social encounter.
There are two views on that scenario: Some observers believe Lévy has done a brilliant deal in essentially taking control of a blue-chip American company without paying above-market premiums. The Omnicom transaction is a stunning accomplishment for Lévy, who started his French agency’s international expansion in 1988 and stumbled after a failed joint venture with America’s Foote Cone & Belding. No one would have thought then he would end up as the No. 1 industry player in the world.
Others say ultimately Omnicom, long-term, wins through this association.
“Net, Publicis do much better out of this deal in short-term value and pride and assuring the future, hence everything being in their favor on this front and Omnicom gets back to win the long game, having missed totally the acquisition spree on digital and emerging markets,” said Richard Pinder, the former COO of ad agency network Publicis, who is the co-founder, CEO of advertising network The House. “My feeling is John (Wren) was OK to give Maurice all the baubles so John would get to control it in a couple of years.”
As expected, the companies’ CEOs will share that role through the initial integration and development period of 30 months. Publicis’ Lévy will then become non-executive chairman and Wren will continue as CEO. (Still, sources wonder how long Wren will stay at the company. There are already indications he may not be there for long, but that question was not raised at the press conference.)
While the two CEOs argued their case today about why the merger makes sense, it still raises strategic questions. A combined entity lowers Publicis percentage of digital revenue and that from fast-growing markets, both areas where Omnicom has lagged its new French partner. In addition, the deal goes against Omnicom’s reluctance to do big transactions, the last of which was in 1998 when it bought the portion of London agency Abbott Mead Vickers Omnicom didn’t already own. More recently, while Publicis has made major digital acquisitions over the years, buying companies like Digitas, Razorfish – in which, ironically, Omnicom was an initial investor – Rosetta, Rokkan and LBi, Wren has focused on growing digital operations organically.
This morning employees from both companies received an internal note from Lévy and Wren just before the press briefing began at 2 p.m., Paris, CET. As elaborated during the press conference, the rationale for the Publicis Groupe Omnicom combination was “a historical opportunity to reshape and establish a new industry standard” in response to the rapid development of new media giants like Google, Yahoo, AOL and Amazon, blurring roles of media and marketing and changing consumer behaviors in response to technology.
Each of the companies will own about 50 percent in the new Publicis Omnicom Group and the new global entity will have a market capitalization of $35.1 billion and more than 130,000 employees.
Wren said there are no planned job cuts. “This was not done so we could go in and cut jobs. The strength of the two groups is their complementary nature.”
But the company said it expects to realize $500 million in efficiencies as a result of the merger, which is hard to imagine without staff and operating cutbacks. When pressed further about details of how those efficiencies will be incurred, Lévy and Wren declined to elaborate.
Publicis Groupe is known to run a lean organization, so much of those cuts may occur within Omnicom.
It’s also still unclear how much client consultation, if any, occurred during the last six months, but Wren addressed the issue of conflicts.
“Do I expect difficulties, yes,” he said, adding that in merger situations agencies can expect the “odd difficulties” and Publicis Omnicom will make commercial decisions, as necessary. “Will it materially affect what we’re doing? No.”
The two companies work for arch-rivals PepsiCo (at Omnicom’s TBWA\Chiat\Day) and Coca-Cola (at Publicis’ Leo Burnett). The combined entity also works for a wide range of automotive companies, including Nissan, Volkswagen and Mercedes at Omnicom and General Motors and Toyota at Publicis and for telecom competitors AT&T at Omnicom and Verizon at Publicis.
There was no mention at the press conference about what senior management changes will happen at a combined company set up with a dual management structure led by two CEOs. In one shift, Publicis CFO Jean-Michel Etienne is not staying on as chief financial officer after the merger, sources said. Omnicom CFO Randy Weisenburger has worked closely with Wren since 1998 when he joined Omnicom from Wall Street where he was a founder of investment bankers Wasserstein Perella.
For the first year following the close of the transaction, expected to happen in the fourth quarter or the beginning of 2014, Omnicom chairman Bruce Crawford, will be the non-executive chairman of Publicis Omnicom. He will then be succeeded by Publicis Groupe's Elisabeth Badinter for the second year; Badinter is expected to retire at the end of 2015. Publicis Omnicom Group will have a 16-member board, consisting of the two co-CEOs and seven non-executive directors from each company. Badinter, 69, is Publicis’s largest shareholder, with 9.13 percent of the company’s stock and 16.57 percent of voting rights. Aside from the satisfaction of seeing her father’s company, started in a small apartment above a Parisian butcher’s shop, become a global giant she is in line for a massive payout since her 19.2 million shares are valued at $1.1 billion at the company’s current stock price of $59.35.
While scale would be an obvious reason for the merger of Publicis and Omnicom in media buying, competitors like WPP, which dominate in emerging markets like China, question the combination.
“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."
French competitor Havas, No. 5 in the ad industry pecking order before this merger, was also quick to respond to the transaction. Before the press conference, the company's CEO David Jones released a statement, saying in part:
"I'm not sure this is in the best interests of their clients or their talent….I doubt you'll find a single client who said 'We wish you were bigger and we were less important to you.' You now have 130,000 people whose focus has been turned off their clients' business and on to internal politics and gossip and wondering what this means for them." Jones added that "best talent doesn't want to work in bigger, more impersonal organizations…It's a massively interesting and surprising move. The industry's obsession with mergers and acquisitions still amazes me particularly in a world where digital and technology have made scale irrelevant.”
Nonethless, regulators care about that scale. 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.”