* Shareholders of both firms to have 50 pct of new group
* Levy, Wren to be co-CEOs during initial 30 months
* Deal expected to generate $500 mln of synergies
* Closing seen in Q4 or early next year
* Antitrust review needed in about 45 countries
By Leila Abboud and James Regan
PARIS, July 28 Publicis and Omnicom
plan to merge to create the world's biggest advertising
group, worth $35.1 billion, a tie-up that could spur rivals to
do deals to keep pace with big changes from technology and the
The companies said on Sunday the transaction - presented as
a merger of equals - would bring the necessary scale and
investment firepower to cope with rapid changes wrought by
technology on the advertising business.
"This is a new company for a new world," Publicis Chief
Executive Maurice Levy said.
"It will be able to face the exponential development of new
internet giants like Facebook and Google, changing consumer
behaviour, the explosion of big data, as well as handle the
blurring of roles of all the players in the market."
The transaction marks a return of jumbo-sized M&A among the
world's 'Big Six' advertising groups, which have spent the past
few years buying up much smaller targets in emerging markets and
among web marketing specialists.
Other deals might now follow. Current leader WPP
could make a move for U.S.-based Interpublic, France's
Havas or Japan's Dentsu.
The new company - Publicis Omnicom - will be traded in New
York and Paris. It will overtake WPP and have combined sales of
nearly $23 billion and 130,000 employees. It brings together
Publicis brands such as Saatchi & Saatchi and Leo Burnett with
Omnicom's BBDO Worldwide and DDB Worldwide.
The French and U.S. company said shareholders in Publicis
and Omnicom would each hold about 50 percent of the new
Omnicom Chief Executive John Wren and Publicis CEO Levy will
jointly lead the new company for the first 30 months, then which
Levy will become non-executive chairman and Wren CEO.
The two veteran CEOs chose the neutral territory of the
Netherlands for the new holding company.
"ALMOST A JOKE"
It all began when Levy casually mentioned the idea of a
merger to Wren at a social event in New York about six months
ago. "I said it almost as a joke, but then once we each went
back and reflected, it didn't seem so crazy," Levy said at a
press conference at Publicis headquarters.
The two executives later brought in Rothschild Group to
advise Publicis and Moelis & Company for Omnicom, choosing
independent firms instead of larger banks in part to try to
But when thorny issues cropped up in the talks, Wren and
Levy settled things in one-to-one phone calls, the two men said.
Under the deal, Publicis shareholders will receive one newly
issued ordinary share of Publicis Omnicom Group for each
Publicis share they own, plus a special dividend of 1.00 euro
Omnicom shareholders will receive 0.813 newly issued
ordinary shares of Publicis Omnicom Group for each Omnicom share
they own, together with a special dividend of $2.00 per share.
There is no premium involved in the merger, although
Publicis was slightly smaller in terms of market capitalisation
than Omnicom. A person close to the deal said that the dividends
were designed to bring the equity stakes to parity.
The groups said the transaction would create "significant
value for shareholders", with expected synergies of $500
million. No job cuts are planned.
A tie-up of this scale, joining two distinct corporate
cultures and management teams, is not without risk.
The new group will have to get antitrust clearance from
authorities in around 45 countries. "We've looked at the
antitrust issues very carefully and are not expecting anything
that would prevent us from going forward," said Wren.
The main competition issue will be in media buying, where
advertising agencies purchase TV or print ads on behalf of
customers. Pivotal Research analyst Brian Wieser estimates that
Publicis Omnicom will account for almost 20 percent of global
media spending and closer to 40 percent in the United States.
To face such concerns, the groups might have to sell small
brands in some countries, said the person close to the talks.
The other hurdle will be reassuring clients over conflicts
that can crop up when an agency works for two competing firms in
the same sector. For example, Omnicom has Pepsi as a major
customer, while Publicis works for Coca-Cola.
Levy said both companies had years of experience setting up
"strict firewalls" to protect clients' interests.
Even so, the deal is likely to create some instability as
rival ad agencies try to poach clients while Publicis and
Omnicom are distracted by the merger.
"This is going to cause turmoil within the industry," said a
senior industry executive. "Everyone is going to reassess where
they stand and every company outside of Omnicom and Publicis
will be all over their clients during this period."
It is unlikely France will derail the deal despite the fact
that a national champion is tying the knot with an American
rival. Levy said the government had already expressed support
for the merger.
Martin Sorrell, WPP chief executive, said he expects more
deals to follow. "It's an extremely bold, brave and surprising
move," Sorrell said in an interview on Sunday.
"Further consolidation of our industry is inevitable."