UPDATE 3-Ad groups plot to compete with new Publicis-Omnicom

Mon Jul 29, 2013 4:33pm EDT

* Shares in WPP, Interpublic, Havas leap on deal news
    * Competing agencies will seek to poach big advertisers
    * Conflicts possible in tech, telecom, autos
    * Publicis, Omnicom say can manage conflict risks

 (Adds comment from Interpublic)
    By Kate Holton and Leila Abboud
    LONDON/PARIS, July 29 (Reuters) - A plan to merge Publicis
 and Omnicom into the world's biggest
advertising group has rivals ready to poach their blue-chip
clients that might leave the new agency as it faces potential
conflicts of interest.
    Without any defections, the Franco-U.S. giant would bring
the accounts of major competitors in a number of industries such
as Apple Inc and Samsung Electronics Co Ltd
, or Coca Cola Co Ltd and PepsiCo,
under one roof.
    Publicis Chief Executive Maurice Levy and his Omnicom
counterpart, John Wren, spoke to some of their biggest clients
before the $35.1 billion deal was announced on Sunday, industry
sources said. The CEOs said they made further calls on Monday to
reassure them they would be better served by the new group.
    But rival CEOs from London to Paris and New York, including
WPP boss Martin Sorrell, were already scouting on Monday
for accounts to poach from the soon to be formed group,
industries sources said. 
    Under the deal, the French and U.S. groups will form an
advertising giant with the scale and investment firepower to
better cope with rapid changes brought by technology on the
business.
    Rival ad groups have a rare opportunity to swoop up clients
as contracts between major advertisers and agencies often
include clauses that say they can be renegotiated in the case of
agencies being bought or sold.
    "It's good for us and other independents," said David
Kershaw, CEO of ad group M&C Saatchi. "It shakes out
more people that want great creative and global capability but
they don't want to be involved with one of these behemoths, and
also who feel uncomfortable having their competitors within the
same group," he told Reuters.
    The merger will bring together Publicis brands such as
Saatchi & Saatchi and Omnicom's BBDO Worldwide and DBB
Worldwide, which could create new client clashes. 
    Levy and Wren said they did not expect any major problems
with big advertisers defecting to rivals, with the Frenchman
describing the reaction from clients as "extremely positive".   
    "We're going to work extremely hard to resolve any client
conflict issues with creative solutions," said Wren, adding that
he expected only a roughly 1 percent revenue decline due to
potential contract losses. 
    Shares in rival ad groups leapt on Monday, in a sign of
their perceived opportunity and prospects for further
consolidation in the industry.
    Shares in WPP, the world's biggest ad agency, opened up over
4 percent before paring gains to 0.6 percent at the London
close. Interpublic was up 8 percent on the New York
stock exchange while France's Havas rose 5 percent.
    "The deal should boost competitors' stock prices in the near
term, with billions of overlapping business up for grabs and the
industry consolidation story now having a greater sense of
urgency," said Steve Soranno, an equity analyst at U.S.-based
firm Calvert Investment Management. It has $13 billion under
management, including shares in Omnicom.
    CEO Michael Roth of competing agency Interpublic said major
acquisitions are not needed to maintain business growth.
"There's nothing about scale that makes for better creative
ideas, or leads to better integration of marketing disciplines,"
Roth said in a statement emailed to Reuters.  
    
      
    
    MASSIVE SWINGS
    Don Elgie, CEO of the insight and digital communications
group Creston, said he expected a fall-out from the tie-up.
    "Communications groups are nothing without their clients,"
he said. "You could see massive swings in terms of clients
moving around.
    "They can't have talked to all their clients (and also) no
client is going to give a cast iron reassurance until they see
how the thing shakes out."
    Three senior European advertising executives interviewed by
Reuters said areas of conflict within the new company could
include the consumer goods, tech and automobile sectors. 
    For example, Omnicom works for PepsiCo and Publicis handles
Coca Cola. In telecoms, Omnicom handles U.S. leader AT&T 
and Publicis its rival Verizon.
    Technology blue-chips are also an issue: Omnicom works for
Apple and Microsoft Corp, Publicis for Samsung and
Google Inc.
    BMW sales chief Ian Robertson said he had some concerns. 
    "We may be affected in some way in some country but it's too
early to say," he told Reuters. "Ideally, clearly we (would)
have that independence from other manufacturers. But in a world
which is now connected and there are so many mergers of this
type, maybe that's something that is not an ideal position." 
    Renault and Nissan were among the first big advertisers to
welcome the deal. 
    "Renault and Nissan are both major global clients of both
Publicis and Omnicom. We welcome the direction taken by Publicis
and Omnicom to create a best-in-class communications,
advertising, marketing and digital services company and will
continue to work with them," a Nissan spokesman in Britain said.
    As the two ad groups begin a round of meetings with
shareholders, the one area they are likely to focus on is the
advantage they will get in negotiating the pricing for ads with
the tech giants of Facebook Inc or Google, and investing
in new software and data mining tools.
    "Consolidation may help regain pricing power in a very
competitive industry," Morgan Stanley analysts wrote.

 (Additional reporting by Rhys Jones and Paul Sandle in London,
Andreas Cremer in Frankfurt, Liana Baker in New York and Sruthi
Ramakrishnan in Bangalore; Editing by David Stamp and Richard
Chang)
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