Publicis, Omnicom Merger Is Recipe For Disaster

Omnicom and Publicis merged to create the largest holding company in advertising, surpassing WPP.

The trends driving the deal are:

- Increased consolidation: Japan's Dentsu recently acquired UK's Aegis in a $5 billion deal.
- Encroachment of tech firms: Salesforce bought Buddy Media, Adobe bought Omniture.
- Digitization of marketing: the shift of audiences to the web and the emergence of Google, Facebook and Twitter is forcing the big holding groups into one another's arms.
- Globalization: while the US and European markets remain the most developed ad markets in the world, the growth will come from South America and Asia.

While the combination of the #2 and #3 in the industry gains market share while cutting costs, mergers tend to fail.  Critics would argue this is a disaster waiting to happen.

Tale of the Tape

Before the announcement, each firm was valued at $16 billion.  Billed as a merger of equals, shareholders of each firm will own 50% of the new entity.  In 2012, Publicis revenues increased 14% to $8.8 billion while Omnicom's grew 2.5% to $14.2 billion.

Mergers of Equal Don't Work

Mergers of equals don't work because one management team is usually more assertive than the other.  Sometimes, cultures clash.  For example, Daimler Chrysler represented the clashing of German and American business cultures.  It's possible that the French at Publicis will view the Americans at Omnicom as a group of cowboys while the Americans at Omnicom will view the French at Publicis as lazy socialists.  Obviously these are inaccurate and unfair stereotypes (in case you are wondering, I am a French-educated Canadian who does business primarily with Americans but Europeans as well), but that's the problem with many of these deals: people on both sides are on their best behavior before they say "I do," and once the deal is done, then the gloves come off as politics and turf battles trumps diplomacy.

Co-CEOs don't work

When Citicorp merged with Travelers, John Reed and Sandy Weill became co-CEOs.  That never works.  Here, Omnicom's Chief Executive John Wren and Publicis' CEO Maurice Levy are expected to be co-CEOs of the combined company. 

Employees won't stick around

Adding to the complexity is that Levy was encouraged to look for a merger partner in hopes of finding an heir apparent. 

You may recall that Bob Lord, who oversaw many of Pubicis's digital assets, recently left Publicis for AOL.  The parties have been talking about the deal for six months, so you can assume that Lord's departure was related.  As such, one must wonder what this deal will do to the culture at the highest ranks of Publicis, as the message Levy is sending to his otherwise loyal lieutenants who helped him build Publicis is that he did not view any of them worthy, as Wren will soon take over whilst Levy moves up to the Chairman role.  But until then...

Co-Chairmen don't work; especially when there's a Co-Chairwoman and a Co-Chairmen

Indeed, Elizabeth Badinter - the daughter of the Publicis founder and a big shareholder - is expected to be co-chairman along with Omnicom chairman Bruce Crawford.

Yes, thankfully the advertising world is full of driven and accomplished females, but that doesn't mean that sexism doesn't exist or that the co-chairman setup will prevail.

The Feds Won't Tolerate This

The combined ad spend controlled by the two is $100 billion a year, or 20% of the global media business.  It's impossible for the government in the US to overlook that detail, with antitrust issues bound to come up.

And if you think the French want to cede any control of a crown jewel to an American competitor, you might want to ask Daily Motion how their talks with Yahoo! went.

Omnicom's brand assortment includes BBDO, TWBA Worldwide and media buyer OMD while Publicis brings Leo Burnett, Saatchi & Saatchi and media-buying firm Starcom Mediavest.  Once you run out of  "synergies" and cost reductions, you must confront the elephant in the room...

Clients Won't Tolerate This

Omnicom's clients include McDonald's and Pepsi Co., while Publicis handles Coca Cola, L'Oréal SA, and Renault SA.

My guess is that phones have been ringing off the hook over the weekend with a game of advertising agency RFP musical chairs about to begin that we've never seen before.

When it's said and done, the deal will take 6 to 9 months to close.  I believe that despite these hurdles the deal will close.  However, it appears to be a matter of cutting off the nose to spite the face.

Tags: m&a, video
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5 comments about "Publicis, Omnicom Merger Is Recipe For Disaster ".
  1. Steve Thommes from Adobe , July 29, 2013 at 3:49 p.m.
    It must be summer vacay and I'm out of the loop: Oracle bought Omniture? SAP bought Salesforce? Tectonic shifts in the LUMAscape slide for sure :)
  2. Ashkan Karbasfrooshan from watchmojo.com , July 29, 2013 at 4:18 p.m.
    Hmm... I'd use that Hemingway line about "write drunk, edit sober" but I am pretty sure I wrote this sober ;) - Salesforce bought Buddy Media; Adobe bought Omniture. Should be fixed soon...
  3. Paula Lynn from Who Else Unlimited , July 29, 2013 at 4:45 p.m.
    Unless a large client will go with a smaller agency, they are stuck. Stuck is as in a smaller agency does not have the person power or influence or department(s) to accommodate their needs. (Another reason is building a growing spy agency with no controls.)
  4. Henry Blaufox from DragonSearch , July 29, 2013 at 8:30 p.m.
    Adobe bought Omniture. Salesforce is independent, buying other companies like Radian6, and marginally profitable at best.
  5. Pete Austin from Triggered Messaging , July 30, 2013 at 3:33 a.m.
    Excellent opinion post. Wish I'd written it. Also, mega-mergers are a warning sign of a bubble in the sector concerned.