For now, it is Maurice Levy’s show. And then John Wren’s. Levy won top-billing, but Wren got long-term control of the world’s largest ad firm -- a Franco-American company, headquartered in The Netherlands. The deal is so perfect, it might as well have been Switzerland.
It wasn’t clear exactly where Levy and Wren were six months ago when they first started discussing the idea. “It was just an encounter,” was all Levy would say when asked by a reporter. He added that it wasn’t “calculated,” a social encounter with “one question leading to another.” All hypothetical until, “we had another encounter” and Levy said the consensus was that the idea of a merger “was not that stupid.”
In retrospect, it looks pretty smart. A “merger of equals” in which Omnicom shareholders will receive 81% more equity -- plus a $2 per share dividend -= than Publicis’ investors. A $35 billion market cap. And yes, some bragging rights too.
But the real benefit of the merger will be Publicis Omnicom’s ability to influence the marketplace, especially data, technology and the “digital media giants” that increasingly stand between their client’s brands and their consumers. The ink on the deal wasn’t even dry when Wall Street analysts began predicting that the combined negotiating clout of Publicis Omnicom would have “negative implications” for some media owners. And while “scale does not necessarily lead to negotiating clout,” Pivotal Research Group’s Brian Wieser believes Publicis Omnicom could follow the consolidated leverage play of WPP’s GroupM unit, with the two jointly driving media prices down “in a manner that was much less likely with any other combination” of media shops.
“We think that a combined Publicis Omnicom will eventually emulate Group,” he predicts. “If two entities behaved in much the same way, we think that this will mean that spending representing the bulk of the market will be materially better positioned to play off media owners against each other, as they will each maintain a greater ability to walk away from negotiations than would otherwise be the case. There will still be unique media properties such as sports programming that are ‘must-have’ and which specific clients want. But we see it getting incrementally harder for media owners to bundle those properties with inventory that marketers are going to be increasingly indifferent towards.”Not everyone’s convinced. “This is an interesting move,” GroupM Global President Dominic Proctor, said in a statement released after the merger announcement. “They are making it clear that a primary motive for the merger is achieving scale in media buying. However, neither Omnicom nor Publicis was able to bring their investment teams together effectively as individual companies, so it will be fun to see if they can now do it together. Getting scale in media investment management is critical for clients, but it only works if it all joins up. We welcome a competitor in this space. Media investment management relies heavily on scale, but scale counts for nothing if it continues to be disparate.”
I've often heard the scale argument which made sense in the traditional media world but in digital this seems to be dated. What good does agency "buying power" do when a growing amount of it are bought in an auction environment? It is a buying in bulk argument that doesn't make sense any more. Also, making this the centerpiece of their merger logic seems risky as this opens the combined entity to perceived anti-trade/monopoly concerns. What do people think?