Publicis-Omnicom Merger Set

A deal seemed increasingly likely over the weekend as Publicis Groupe said it would hold a press conference early Sunday morning (2 pm, CET, in Paris) to discuss “a major corporate announcement” but did not disclose additional details.

The official confirmation, expected tomorrow, would cap a week of speculation about what would be the ad industry’s largest merger. Bloomberg reported Omnicom and Publicis Groupe, the industry’s No. 2 and No. 3 players, were in "late-stage" discussions about a merger that would result in a global powerhouse. The combination, with $23 billion in revenue, would unseat WPP Group as the world’s largest marketing communications company.

While the Bloomberg story described the combination as a “merger of equals,” its headline “Publicis Said to Be in Late Stage Merger Talks With Omnicom” suggested the deal is being driven by the Paris-based holding company.

Such a transaction would help Publicis buy the stock of retiring chair Elisabeth Badinter, the daughter of Publicis founder Marcel Bleustein-Blanchet, who has been a member of the holding company’s Supervisory Board since 1987 and its chair since 1996. She is expected to retire from that capacity at the end of 2015. Badinter, 69, is Publicis’s largest shareholder, with 9.13 percent of the company’s stock and 16.57 percent of voting rights. At the company’s current stock price of $59.35, her 19.2 million shares are valued at $1.1 billion. Depending on the terms of the deal, her holding could be halved.

It’s believed Publicis CEO Maurice Lévy had previously put together a syndicate of banks to buy out Badinter but she refused. Now, as she looks to retire as chair, it is thought she is more amenable.

An acquisition would also make Omnicom CEO John Wren even richer, should corporate change-in-control clauses trigger his considerable stock options. Wren’s stock holding of 1.1 million Omnicom shares, is already worth $70.6 million at current market prices. 

Rumors about the merger first started to circulate last week, with Adweek sources saying “very-inside, behind-the-scenes” discussions were being held between Wren and Lévy and their legal and financial advisors. Clients were not being told, neither were heads of operating units at the companies, per sources. While executives at both companies were being briefed over the weekend, it's not clear the extent to which clients have now been consulted. One observer wondered about marketer backlash similar to earlier attempts like Saatchi & Saatchi's to create the world's largest agency when it acquired Ted Bates in 1986 and longtime Bates clients Warner Lambert and RJR Nabisco left in protest.

While it makes for great headlines, it’s not clear technically how a “merger” would work, what the terms would be or if one of the two companies would be the acquiring entity. Both companies’ stocks are trading near their 52-week highs, with Omnicom closing today at $65.11 and Publicis at $59.35.

Publicis, with $8.8 billion in revenue, has a market capitalization of $14.6 billion nearly as much as Omnicom, with a market cap of $16.7 billion. But Omnicom has almost double the revenue at $14.2 billion. (Current industry leader WPP posted $15.6 billion in revenue last year and has market capitalization of around $20 billion.)

It’s also not apparent what anti-trust implications there would be in the U.S. or how the companies would deal with client conflicts like arch-rivals PepsiCo at Omnicom’s TBWA\Chiat\Day and Coca-Cola at Publicis’ Leo Burnett. The combined entities also work for a wide range of automotive companies like Nissan, Volkswagen and Mercedes at Omnicom and at Publicis, General Motors and Toyota and competitors AT&T at Omnicom and Verizon at Publicis Groupe.

Among marketers held in common are Mars, Pfizer, Procter & Gamble and Visa.

Calls to Omnicom’s Wren and his CFO Randy Weisenburger were not returned, which was also the case with Publicis’ Lévy, who is said to have been on holiday in Provence until mid-August. Those who know him say his annual vacation is a time when he likes to do deals, think about them and spend time on the phone discussing them.

Sources speculate Wren, in his early 60s, would seem logical to continue as CEO, with Lévy, 71, as chairman, although others say the two will have co-CEO roles. Following Badinter’s departure, Lévy has said he would transition into a chairman’s role in 2016. It is not clear if key management figures like Omnicom CFO Weisenburger, who joined the agency in 1998 from Wall Street where he was a founder of investment bankers Wasserstein Perella, will stay with a combined company.

A Omnicom-Publicis entity would presumably provide a clearer succession plan than Lévy has in place, but observers find it hard to imagine an American at the helm of a flagship French business. “While that succession might make sense it’s not the way French companies work,” said one industry exec.

In envisioning a merger scenario, sources say that Lévy would like to have some of Omnicom’s creative networks while Omnicom would benefit from Publicis’s digital and media properties and presence in emerging markets, particularly in China.

The heightened chatter around what could be such a mega-event in the industry even prompted questions at one point about whether Interpublic Group of Companies, a smaller rival often seen as an acquisition target, could also be involved. (Lévy has already made two previous offers for IPG and Wren has also expressed interest in carving up the company.) Some observers wondered if Omnicom and Publicis might be teaming up to acquire IPG in a highly unusual arrangement to divvy up the assets and sell what they didn’t want. Lévy is known to want McCann Erickson and some of the holding company’s marketing services units. (He also remains a big fan of incoming Draftfcb CEO Carter Murray, who worked for Publicis as worldwide account director on Nestlé.) Omnicom might be interested in IPG’s media networks. As of Friday afternoon, Interpublic had not been approached by either Omnicom or Publicis Groupe, sources said and the speculation was unfounded.

Current and former associates of Lévy’s say he plays deals very close to the chest.

“Maurice is very good at keeping secrets. If this is actually happening, maybe his CFO (Jean-Michel Etiennne) knows, but (COO) Jean-Yves Nauori may not even know,” says one exec. “The board will know and Elisabeth Badinter will know. That’s probably it.”

As for Wren, a merger like this is out of character for a chief whose last major acquisition of a public company was in 1998 when it bought the portion of London agency Abbott Mead Vickers Omnicom didn’t already own. In recent years there has been speculation that Wren, who has been primarily based in Florida, has wanted to move on to other things. But he has since become more engaged in running Omnicom and its operating units.

“Unlike five years ago, John’s not ready to leave,” said one observer. “He wants to be the industry’s biggest CEO, like one with a Fortune 100 company.”

However unlikely an Omnicom-Publicis merger seems, a combination of the two holding companies would give Wren that considerable clout. Omnicom companies include worldwide networks like BBDO, TBWA and DDB; specialist marketing shops like Rapp in Diversified Agency Services; Omnicom Media Group; Organic; Proximity; and Tribal. Publicis is home to global agencies like Leo Burnett, Publicis, Saatchi & Saatchi, Starcom, ZenithOptimedia, Rosetta, Rokkan, VivaKi and Razorfish.