* Shareholders of both firms to have 50 pct of new group
* Levy, Wren to be co-CEOs during initial 30 months
* Antitrust review needed in about 45 countries
By Leila Abboud and Nicola Leske
PARIS/NEW YORK, July 28 A proposed mega-merger
between global ad agencies Publicis and Omnicom
could bring rival accounts such as Coca-Cola
and PepsiCo under one firm, underscoring the scale of
the $35.1 billion deal and the potential conflicts it raises.
The companies said on Sunday that the deal - presented as a
merger of equals - would give the combined firm the necessary
scale and investment firepower to cope with rapid changes
wrought by technology on the advertising business.
At a press conference in Paris, the CEOs of the two
companies pledged they could handle concerns from major clients
who may find the marriage too close for comfort, as well as
address questions from regulators who are concerned about
maintaining a competitive landscape.
"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 behavior, the explosion of big data,
as well as handle the blurring of roles of all the players in
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."
Morningstar analyst Michael Corty said large clients, such
as Omnicom's PepsiCo, AT&T and Microsoft Corp, as
well as Publicis' Coca-Cola, Verizon and Google Inc
, were used to having leverage in negotiations as they
push agencies to give them better payment terms.
"We're getting to a new frontier now and major companies
might not like the change," he said.
The jumbo transaction size is rare 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. If completed, it will shift focus on
those left standing alone, such as current leader WPP,
U.S.-based Interpublic, France's Havas and
Martin Sorrell, chief executive of WPP, said the pressure
for rivals to respond will be great. "It's an extremely bold,
brave and surprising move," Sorrell said in an interview on
Sunday. "Further consolidation of our industry is inevitable."
'ALMOST AS A JOKE'
It all began when Levy casually mentioned the idea of a
merger to Omnicom CEO John 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.
In the last 10 days leading up to the deal bankers, lawyers and
principals were basically in lockdown hammering out details, a
source familiar with the matter said.
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
company's equity. Wren and Levy will jointly lead the new
company for the first 30 months, then Levy will become
non-executive chairman and Wren CEO.
The two veteran CEOs even chose the neutral territory of the
Netherlands for the new holding company.
Yet questions remain whether the equal nature of the
marriage will stand the test of time. Pierre Ferragu, analyst
at Sanford C. Bernstein Research, said it could take a few years
to see if the cultures of Publicis and Omnicom would blend
together or if fissures appear in the so-called merger of
"There are mechanisms in place in the first few years to
protect the parity of management so it should be fine in the
transition period. But in these kinds of mergers, there are
always tensions. Usually one side or the other eventually
imposes its way of doing things on the other."
The new group will also 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.
Morningstar analyst Corty said it was unlikely the two
companies would have progressed to this stage if they had doubts
about getting approval.
Others were less optimistic. Bert Foer, head of American
Antitrust Institute, predicted that clients of the two
advertising giants would object to the deal and that media
companies that depend on advertising to survive would complain
to antitrust authorities. Asked about regulatory approval, he
said: "I don't think they should get it."
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 a person close to the talks.
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.