Omnicom and Publicis merge to form biggest advertising agency

U.S. ad agency Omnicom Group Inc. and France's Publicis Groupe say they are combining in a "merger of equals" to create the world's largest advertising firm, one worth more than $30 billion. Reuters put the value of the merger at just over $35 billion.

The combined company will be called Publicis Omnicom Group and be jointly led by Omnicom CEO John Wren and Publicis CEO Maurice Levy as co-chief executives.

The transaction is the latest -- and biggest -- in a series of recent mergers and acquistions by 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.

The move is designed to bolster the companies' focus on growing Asian and Latin American markets such as China and Brazil, where they each have ramped up operations to counter weak growth in European markets.

The decrease in competition could bring about more pricing power, but could also present regulatory hurdles in the U.S. and Europe. Client conflicts also could be an issue, as rivals such as Coca-Cola Co., PepsiCo, McDonald's, Yum Brands' Taco Bell, Johnson & Johnson and Procter & Gamble now find themselves under the same umbrella.

To give a sense of the scale of the merger in the ad industry one need only peruse each company's roster of agencies: Omnicom Group Inc., based in New York, owns BBDO Worldwide, DDB Worldwide Communications Group and TBWA Worldwide, among other agencies. Paris-based Publicis Groupe SA runs its namesake agency as well as Leo Burnett Worldwide, Saatchi & Saatchi and DigitasLBi. The newly merged company has a combined annual revenue of about $23 billion, which pushes it ahead of London's WPP PLC, the industry leader up until Sunday.

Founded in 1986, Omnicom generates just over half of its revenue from U.S. clients, and about one-quarter from European and British markets combined. The company's stock has risen 31 percent in the last 12 months, recently peaking at $67.43 on the New York Stock Exchange.

Omnicom will benefit from Publicis' strategic shift in the last few years toward digital operations, as the French company beefed up its digital marketing profile with the acquisitions of Digitas, Razorfish, Rosetta, Big Fuel and LBi. Publicis, which had revenue of $8.78 billion in 2012, had targeted generating 75 percent of its revenue in digital and fast-growing countries by 2018, according to a recent investor presentation.

Publicis also benefits from the merger, as it has faced questions about who will succeed Levy, the 71-year-old CEO. Publicis will now have access to Omnicom's well-regarded senior leadership, said James Dix, an analyst at Wedbush Securities, according to The Associated Press.

The companies will need to carefully determine how to strike a harmonious balance of power, however. Such a feat can be difficult in mergers of similar-sized companies based in different countries.

"You have these fiefdoms that keep people from playing together. One company is based in Paris, one is in New York. Where is the power center?" Dix said.

He adds that the adjustment may be more difficult for the executives who run the firms' various units but are not yet at the top level, where those executives have had knowledge of the merger for a longer period of time.  

"Now they have to fit together into a broader organization," Dix said.

The deal is expected to close in the fourth quarter of 2013 or the first quarter of 2014, the companies said.

Wire services