Out of Left Field – Publicis and Omnicom to Merge

Earlier this week, Omnicom and Publicis announced the signing of a definitive agreement for a cross border merger of equals, forming the world’s largest advertising holding company. The joint company will be called Publicis Omnicom Group and be led by Omnicom CEO John Wren and Publicis CEO Maurice Levy who will be co-chief executives for at least the next 30 months. The transaction has been structured so that the shareholders of Publicis Groupe and Omnicom, after special dividends, will each hold approximately 50% of the equity of Publicis Omnicom Group. The transaction is subject to approval by the shareholders of both companies as well as numerous regulatory approvals. It is expected to close in the fourth quarter of 2013 or the first quarter of 2014.

With combined revenue of $22.7 billion in 2012 and a market capitalization of approximately $35 billion, Publicis Omnicom Group knocks WPP from its position as the world’s largest advertising firm. The combination dramatically alters the worldwide advertising landscape and brings together the most extensive portfolio of leading agencies (such as Razorfish, Saatchi & Saatchi, DigitasLBI and Ketchum, among others).

Given that both companies are fundamentally and competitively strong individually, the announcement of the merger sincerely came as a surprise to us. So what was the rationale? Outside of becoming the largest agency in the world, the merger helps fill gaps in each of Omnicom and Publicis’ individual platforms. For example, it helps accelerate Ominicom’s digital strategy and provides access to international markets (specifically China). For Publicis, the deal enhances its creative capabilities and bolsters its presence in the United States. Lastly, the potential combined cost synergies alone (projected at $500 million) adds tremendous shareholder value. Given this game changing deal, we fully expect to see a wave of large scale acquisitions across the advertising and marketing landscape over the next 12-24 months.