Proposed merger will create advertising giant

The advertising giants Publicis Groupe, based in Paris, and Omnicom Group, in New York, announced during the weekend they would seek to create the world’s largest advertising conglomerate by merging.

Here are some of the details from the New York Times:

Two leading advertising companies, Omnicom Group and Publicis Groupe, announced a merger on Sunday that would create the world’s biggest family of agencies, with a stock market value of $35.1 billion and 130,000 employees.

The combination of Publicis, based in Paris, and Omnicom, based in New York, would supplant the advertising industry leader, WPP of London. Although Omnicom is slightly bigger than Publicis, the deal is shaped as a merger of equals, combining companies that had total revenue of $22.7 billion last year. The new company would be called the Publicis Omnicom Group.

In the early going at least, the combined company would have co-chief executives: John Wren of Omnicom and Maurice Lévy of Publicis. But after 30 months, Mr. Wren, who is 60, would become sole chief executive and Mr. Lévy, 71, would be nonexecutive chairman.

The marriage, if it passes muster with antitrust regulators in the United States and Europe, and is given the blessing of the French government, would bring under one roof separate networks of ad agencies — including BBDO, TBWA and DDB under Omnicom, and Leo Burnett and Saatchi & Saatchi under Publicis. Collectively, the conglomerates represent some of the world’s largest brands, including AT&T, Visa and Pepsi at Omnicom and McDonald’s, Coca-Cola and Walmart at Publicis.

That’s an incredible list of clients, but Forbes questions whether they’ll be able to maintain service while pushing together the two behemoths:

It remains to be seen to what extent the integration logistics will affect the client experience. When asked how the new entity will handle integration and simultaneously attend to clients, Wren responded, “We will continue to work hard for the clients. We will make whatever effort we have to to make sure our clients are happy will be able to deliver even more resources [combined that we could have individually].”

“We will form a transition team,” Levy added. “They will have to build a plan. Both of us have great experience at merging, acquiring, so it’s not something that’s totally new to us.”

Bloomberg wrote a sidebar about the banks working on the deal, and how it wasn’t who you’d normally see in a deal this large:

For bankers, the merger of Publicis Groupe SA (PUB) and Omnicom Group Inc. (OMC) was notable for what it didn’t involve: the participation of a single large investment bank.

Instead, New York-based boutique Moelis & Co. and Rothschild, the storied Paris-based merger adviser, worked with Omnicom and Publicis, respectively, shutting out their bigger competitors. The deal, which will create a globe-spanning advertising company with a market capitalization of more than $30 billion, will also give both firms a significant jump up the league tables for merger advice.

The transaction was a rare example of a major deal that didn’t draw in large banks like Goldman Sachs Group Inc. (GS) and Deutsche Bank AG. Proponents of smaller firms say their focus on merger advice allows them to provide impartial counsel to corporate executives, while bankers at large firms say their suite of financing products and broad role in the financial markets provide a key advantage.

“The reason we didn’t add more advisers is because we didn’t need them at the end of the day,” Omnicom Chief Executive Officer John Wren said at a press conference in Paris today. “Maurice and I settled many of the issues,” he said, referring to Publicis CEO Maurice Levy.

The Wall Street Journal story pointed out that anti-trust issues could cause problems for the deal, which would create one of the biggest media buying agencies in the world. Excerpts from the story are below:

As advertisers have been shifting more and more ad dollars into digital communication and advertising that is driven by data about consumer behavior, ad holding companies have rushed to bulk up their digital expertise over the past 10 years, as well as boost their presence in emerging markets.

Publicis, along with London-based rival WPP, has been particularly aggressive in acquiring digital ad firms, such as LBI, Razorfish and Digitas, giving it a strong presence in that sector.

The French group also has been sweeping up numerous small to midsize agencies in emerging markets such as China, Brazil and India. Omnicom, on the other hand, has preferred mainly to work with technology companies and build internal Web capability. Omnicom also has acquired many companies in overseas markets.

Analysts said the transaction could face antitrust scrutiny, particularly as a combination of the companies would dominate the ad-buying world, spending roughly a combined $100 billion a year, which represents about 20% of the global media business.

“We were advised by some of the best lawyers and we do not expect any regulatory obstacles,” Mr. Wren said.

Another potential hurdle is likely account conflicts, as the ad firms work for major rivals. For example, Omnicom counts PepsiCo as one of its biggest clients, while Publicis does work for Coca-Cola Co. Such conflicts that arise after a merger sometimes cause marketers to move their business to another agency.

That’s a huge amount of media buying. It will be interesting to see if it will make it past regulators on both continents. It may seem like an auxiliary business since the company isn’t creating a product, but this merger could create a huge corporation with the ears of many senior executives across industries. And that’s a lot of power to shape what consumers are buying and to influence those at the top of business.