• by Steve McClellan  @mp_mcclellan, December 14, 2015

WPP has agreed to merge its Australian and New Zealand operations with Sydney-based STW Communications to create a new entity with annual revenues of nearly $725 million. The deal is subject to approval by Australian regulatory authorities and STW shareholders.

WPP is contributing its agency assets in the region to STW and will take a controlling stake of 61.5% in the combined company. Those assets include the regional offices of Grey,  J.Walter Thompson, George Patterson Y&R, MEC, Mindshare and dozens of others. After the deal is approved, the company will rebrand to align more closely with WPP.

The new holding company, which would be Australia’s largest with some 5,500 staffers, will be overseen by Michael Connaghan, CEO of STW and the firm’s Chairman Robert Mactier.

The two companies have had a working relationship for close to two decades. Prior to the merger, WPP held nearly a one-quarter interest in STW, which will remain publicly traded in Australia.

Australia and New Zealand make up WPP’ s fifth largest market after the U.S., UK,  Greater China and Germany.

WPP CEO Martin Sorrell said that the deal would “give us a unique opportunity to offer our local and international clients a comprehensive set of services and to make sure we can offer the best talent through country management.”

STW’s financial performance has been a bit shaky of late. Profits were down about 10% in 2014 and plummeted 22.5% in the first half of 2015.

STW CEO Connaghan commented that the deal provides the firm with the “potential to create a group unparalleled in this part of the world, totally focused on our home markets, but allowing our clients and people open access to best thinking on a global level.”

If a competing bid is made before the deal closes, WPP has the right to match it.