Commentary

It's A Bouncing $34.1 Billion Ad Galaxy: Publicis Omnicom

As the data-driven advertising cosmos expands at a dizzying rate, the Milky Way and Andromeda galaxies -- New York–based Omnicom and Paris–based Publicis Groupe -- announced yesterday that they are merging to create Publicis Omnicom Group with a combined staff of 130,000 worldwide and a market cap of $35.1 billion. The two holding companies brought in combined revenue of nearly $23 billion last year -- but that’s still half that of Google.

“The combination … is aimed at restoring the balance of power between advertising agencies and such Silicon Valley companies as Google and Facebook,” Suzanne Vranica and Ruth Bender write in the Wall Street Journal. They report that the 22% of global ad spending that’s currently digital is projected to grow to 27% by 2017, according to eMarketer.

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“There has been a huge shift in the way we do business,” Jonathan Nelson, CEO of Omnicom’s digital business, recently told the WSJ. “We are borrowing black-box trading techniques out of Wall Street; we are looking at genetic algorithms; we are looking at artificial intelligence; we are looking at predictive models; we are looking for anything that might give marketers an edge.”

The “merger of equals” will be based in the Netherlands with operational offices remaining where they are. Publicis’ Maurice Lévy, 71, and BBDO’s John Wren, 60, will serve as co-CEOs for 30 months after the deal closes. Lévy will then become non-executive chairman and Wren will be sole CEO. In the meantime, Omnicom chairman Bruce Crawford, 84, will serve as non-executive chairman for a year. Elisabeth Badinter, 69, the current Publicis chairwoman (and daughter of its founder), will succeed him for the second year.

A live Q&A teleconference about the proposed deal is scheduled for 8 a.m. EDT this morning; an archive will be posted here. Business Insider’s Jim Edwards live blogged yesterday’s event in Paris.

“We see the lines have been blurred between the various functions and the various players,” Lévy said in an interview after the announcement, the New York TimesTanzina Vega reports. “Our industry is not limited to a handful of people,” Wren added. “There are new people coming over the line to what was traditional advertising every single day.”

Those additional competitors include “Accenture, Sapient and Deloitte, consultancies that have built up their marketing and data divisions to include many services once provided exclusively by ad agencies,” writes Vega.

Omnicom Group includes three of the top 10 global advertising brands: BBDO Worldwide, DDB Worldwide and TBWA\Worldwide. Publicisconsists of 1283 agencies in six regions including Saatchi & Saatchi, Leo Burnett and Fallon. According to Ad Ageestimates, “the combined company accounted for 41.2% of 2012 revenue among the world’s 10 largest media agencies.”

WPP CEO Martin Sorrell was gracious about the deal engineered by his long time-rival, Lévy, calling it an “extremely bold, brave and surprising move,” Rupal Parekh reports in Ad Age. Sorrell also asserts that there’s no pressure on him to regain the top ad conglomerate spot by making a similar deal.

“In Europe we’re still the same size [as Publicis Omnicom Group], in Asia we’re bigger, in Latin America we’re slightly smaller, in Africa we’re bigger and in America they have an antitrust issue,” he says. Sorrell also suggests that WPP will benefit from potential client conflicts.

The deal is expected to come under close scrutiny not only from clients such as Cola-Cola (Publicis) and Pepsi (Omnicom) but also by regulators. 

Albert Fried & Co. analyst Rich Tullo predicts pushback from regulators in both the U.S. and France, writes the AP’s Thomas Adamson. “The U.S. could be wary of one company controlling such a large portion of the market, he said, while in France, authorities might not take warmly to any Americanization of a company that is a bright spot in the bruised French economy.” But Lévy said the initial reaction from French officials had been one of “tremendous support,” the Financial Timesreports.

Lévy also pointed out “both companies had years of experience setting up "strict firewalls" to protect clients' interests,” report Reuters’ Leila Abboud and Nicola Leske.

“The combined entity also works for a wide range of automotive companies, including Nissan, Volkswagen and Mercedes at Omnicom and General Motors and Toyota at Publicis and for telecom competitors AT&T at Omnicom and Verizon at Publicis,” Noreen O’Leary reports in Adweek.

Several observers tell Bloomberg’s Sara Forden that they foresee “ intense scrutiny” by U.S. regulators –- whether the Federal Trade Commission or the Justice Department’s antitrust division would take the lead is not clear –- but Robert Doyle, an antitrust lawyer with Doyle, Barlow & Mazard PLLC in Washington and a former FTC official doesn’t think so.

 “I’m not so sure there’s an antitrust problem,” he says. “If a big corporate client like Pepsi thinks it’s getting taken advantage of, it will find someone else.”

That would still involve an traditional agency review and not a programmatic buy, one would think, but for how long?

1 comment about "It's A Bouncing $34.1 Billion Ad Galaxy: Publicis Omnicom".
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  1. Zachary Cochran from CPXi, July 29, 2013 at 12:35 p.m.

    This article is a great resource for someone looking to see what all the major news sources are saying on the subject. Thanks.

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