Omnicom and Publicis in quest to create new behemoth

By Edwin Lane
Business reporter, BBC News

image captionToo big to fail? Maurice Levy and John Wren put pen to paper on their merger deal

Maurice Levy, the long-time boss of French advertising firm Publicis, admits that plans for a landmark merger with US rival Omnicom began "almost as a joke".

Six months ago he casually mentioned the idea to Omnicom's chief executive, John Wren, at a party in New York.

On Sunday the two executives were in Paris to put pen to paper on a deal that will create the biggest advertising company on the planet.

It took many in the industry by surprise. When news of the deal began to leak over the weekend, David Jones, the chief executive of Havas, another advertising firm, summed up the mood when he tweeted: "oh wow, just saw a pig fly".

But Mr Levy told reporters on Sunday: "I said it almost as a joke, but then once we each went back and reflected, it didn't seem so crazy."

The official rationale for the tie-up is that a "merger of equals" will make both companies better prepared to face the dramatic changes that the advertising industry has undergone in recent years.

Competition concern

They include the growth of internet giants such as Google and Amazon, the wider growth in digital media at the expense of traditional media such as television and newspapers, and the increasing use of developing technologies such as big data analysis.

image captionThe merged company would represent rivals including Coca-Cola and Pepsi

The companies also believe they can make around $500m (£325m) in savings through pooling their resources and synergies in the businesses, and the merger will give them access to a wider range of clients.

Analysts also suggest the new behemoth will be able to use its size to negotiate better contracts, meaning margins will go up.

"If the merger goes ahead successfully, this means a lot of changes," says Rich Tullo, an analyst at US brokerage, Albert Fried & Co.

"Suddenly pitches will be less competitive. They will be able to capitalise on their scale."

But many who follow the advertising industry have raised concerns about the wisdom of the merger.

First there are likely to be significant competition concerns. According to Mr Tullo, the two combined companies will have around 40% of the TV buying market in the US alone, triggering the interest of regulators there.

Globally, it will have to get antitrust clearance from authorities in around 45 different countries.

Secondly, there are concerns the merger will creates conflicts of interest between the companies' vast rosters of high-profile clients.

'Succession plan'

Between them, Omnicom and Publicis handle accounts of competing clients that include Coca-Cola and Pepsi and Microsoft and Google.

The advertising companies say "Chinese walls" - banning communication between teams working on different accounts - are now common practice and will prevent conflicts developing.

But rival ad-man Sir Martin Sorrell, the chief executive of London-based WPP, warned clients would be unhappy.

"I think some of the clients and media owners are going to be a little bit concerned," he told the BBC.

"I think they failed to engage with clients and explain it, and there are precedents in our industry where it didn't turn out pretty as a result."

He also voiced concerns about the clash of cultures between US-based Omnicom and France's Publicis.

Currently, the plan is for Mr Levy and Mr Wren to share the role of chief executive, before the former steps down to become group chairman.

Sir Martin described the structure as "messy". "Co-CEOs doesn't traditionally work," he said.

But several analysts argue that bringing together the two bosses is far more central to the merger plans than the company may be letting on.

"The number one reason has to do with the chief executive of Publicis," said Rich Tullo.

"This is a succession plan for Levy's leaving. This is him going after the best CEO he can get, and that at the moment is John Wren."

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