• by Tom Siebert , December 21, 2006

In a bold move that reconfigures the digital hierarchy of Madison Avenue, Paris-based agency holding company Publicis Wednesday announced a deal to acquire online and direct marketing powerhouse Digitas for $1.3 billion in cash. Publicis, which already had a highly regarded and strategically oriented digital team, now gains the kind of clout and talent that will force other big agencies to play catch-up--potentially triggering a rush to gobble up the few remaining independent digital agencies.

It's all part of a plan that Publicis began putting in place some 18 months ago, but which somehow managed to remain quiet despite ample speculation that Publicis was poised for a big acquisition. Most industry observers had speculated that Publicis would acquire a general market agency or another general media specialist like London-based Aegis, but Publicis Chairman-CEO Maurice Levy tells MediaDailyNews the decision was made to turn Publicis into "an all digital agency."

"We would have much less paper for things to do with administration, so it was not only the digital aspect regarding the Internet and marketing, but the way we were behaving ourselves." Levy said Publicis' new digital manifesto focused first on strengthening the digital operations of Publicis' existing agency networks, including Leo Burnett and Saatchi & Saatchi. It also led to the formation of Denuo, a new, high-level and strategically focused operation concentrating on the future of media, but primarily on digital.

At about that point, Levy says, "we then made the decision to make some strong, game-changing acquisitions."

The acquisition of Digitas certainly changes the game, creating the biggest digital media services conglomerate by a significant margin, and one that blends the cultures of two organizations known for strategic thinking, and the fusion of creative and media.

"The massive shift from old media to new media is leading to a new world, and we don't want to be on the sidewalk--we want to be on the forefront of all that is new and bring these new technologies to our clients," Levy explains, citing other seminal deals, such as ZenithOptimedia's acquisition of Moxie Interactive earlier this year.

"We want to be the most advanced communication group with the highest level of skill in the digital field. We believe that this acquisition makes us the most important buyer of Yahoo, MSN and the like," says Levy. "We believe these strengths will allow us to take a leadership role and to build something that will make us a formidable partner to both the advertisers and the portals (see related story in today's OnlineMediaDaily).

In addition to scale, Levy says Digitas brings another perishable asset to Publicis' digital mandate: talent.

Outside observers agree. "Publicis has always been very astute in the acquisitions they've made--arguably the most successful of any of the holding companies," says Arthur Anderson, principal and co-founder of Morgan Anderson. "One big reason for their success that could and should pay off with Digitas is that they seem able to acquire sizable creatively driven agencies--Kaplan Thaler, Fallon, Leo Burnett--and let those agencies keep their culture."

Ultimately, time will tell how the fusion of Digitas into Publicis' burgeoning digital network fuels its growth, but based on the market's reaction to the deal on Wednesday, shareholders are voting it will.

Publicis shares jumped 2% to $40.51 on Tuesday, giving the French holding company a market capitalization of $7.44 billion.