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Publicis Groupe to Acquire Digitas for $1.3 Bil.

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NEW YORK Publicis Groupe has agreed to acquire Digitas for $1.3 billion in cash, a move that will greatly expand the French holding company's digital marketing capabilities.

The deal calls for Publicis to pay $13.50 for Digitas' shares, a 23.5 percent premium on their closing price.

The acquisition represents the boldest move yet by Publicis CEO Maurice Lévy to bolster the company's offering in marketing services. The holdings of Boston-based Digitas include its namesake agency, along with interactive shops Modem Media and Medical Broadcasting Co.

The company is on track to produce overall fee revenue of approximately $390 million.

Said Lévy, "We see that this market is buoyant and the market is moving to the digital era. The fact that we have now with us Digitas is something that will help us a great deal to help our clients move to the digital space."

Digitas CEO David Kenny will stay on after the deal closes and join Publicis' executive committee. Kenny noted about two-thirds of Digitas' clients have international presence. "They're eager for us to take their successes in the United States global," and Publicis will provide Digitas with a springboard to do just that, he said.

Unlike its larger rival Omnicom, which owns digital shops Agency.com, Organic and Atmosphere BBDO, Publicis has little expertise in the area. In August, it acquired Moxie Interactive, an Atlanta-based interactive agency, which was paired with Zenith Media.

Lévy has long been concerned with Publicis' reliance on traditional advertising. In October, he said Publicis was looking for a large acquisition, sparking talk that he would make a run at Aegis Group or even Interpublic Group. Publicis is the No. 4 holding company, trailing Omnicom, WPP and Interpublic.

Instead, he settled on Digitas, which has seen its stock price fall 35 percent from its high this year in a booming market for interactive advertising. The company disappointed investors by losing business from Best Buy, FedEx and Ameriprise, leading to a shakeup in its Chicago office that will bring in former DraftFCB new business head Tony Weisman as president in the New Year.

Digitas has also suffered from lower spending from two of its largest clients, General Motors and Delta Air Lines, which are projected by Digitas to pay it 14 percent less this year. This led to about 50 layoffs in the third quarter [Adweek Online, Oct. 26].

Aaron Kessler, an equities analyst with Piper Jaffray, said the price is in line with what he would expect Digitas to garner, despite its recent performance hiccups. "Clearly there was an acquisition premium paid," he said.

Digitas has sought to diversify its business from its reliance on its largest clients, General Motors and American Express, which account for about 44 percent of its revenue. Last January, it bought Philadelphia-based MBC, which specializes in pharmaceutical advertising with clients like AstraZeneca, Bristol-Myers Squibb and Novartis.

In acquiring Digitas, Publicis will gain inroads with GM, a key client for Leo Burnett and Starcom MediaVest.

It also represents a further consolidation of Web agencies. Digitas had built a mini-holding company through its acquisition of Modem Media in July 2004. It further expanded that by adding MBC as its third agency brand. It leaves aQuantive, owner of Avenue A/Razorfish, as the biggest independent player. Others include AKQA, a San Francisco-based Web agency that works for Coca-Cola, Microsoft and Visa.

Post acquisition, marketing services will make up 34 percent of Publicis' revenue (up from 28 percent), while digital services will account for 15 percent.