How Will Publicis Omnicom Save $500 Million?

By eliminating redundancies, gaining purchasing clout

Omnicom CEO John Wren has promised efficiencies of $500 million dollars in the Publicis Omnicom Group deal.

How is he going to get there? Well, first off, by eliminating back office redundancies and consolidating real estate space. For example, a single corporation doesn’t need two accounting departments, let alone two accounting offices in a single city. So, observers expect a thinning of the ranks in such departments. For that, Wren is estimating savings of $240 million.

The other $260 million in efficiencies will come in the purchase of outside services. As a larger company, Publicis Omnicom expects to have more clout in such purchasing and therefore get better prices on everything from healthcare to production services. So, that’s potentially bad news for suppliers.

In other words, as Publicis Omnicom decreases its costs, scoring points with Wall Street, outside vendors face the prospect of less revenue and smaller profits.

Publicis Omncom’s cost savings won’t come overnight, however. The $500 million won’t be realized for at least five years, according to report today from JP Morgan analyst Alexia Quadrani.

“Front end costs to achieve those savings at $400 million will likely limit net synergies in the first two years,” Quadrani added.

That said, Publicis “has notably higher profitability than [Omnicom] and traditionally has focused on more margin improvement, paving the way for better profitability long-term,” Quadrani wrote.