Boom or bust? Reaction to Publicis-Omnicom deal

Omnicom Group and Publicis Groupe pulled off the biggest merger in the history of the advertising and marketing services industries on Sunday - at least until the regulators and shareholders have their say. Here's a roundup of the best coverage and reaction from around the Web.

Omnicom Group and Publicis Groupe pulled off the biggest merger in the history of the advertising and marketing services industries on Sunday – at least until the regulators and shareholders have their say. Here's a roundup of the best coverage and reaction from around the Web.

Investors react
Shares of Omnicom were up 4.8% in morning trading, while Publicis' stock price rose 4.5%. The shareholders of each firm will hold about 50% of the new company's equity in the deal. The two holding companies have stressed that this is a “merger of equals,” while rival Martin Sorrell, CEO of WPP Group, has slammed it as a “nil-premium merger” for Omnicom shareholders.

Havas CEO David Jones, meanwhile, said such a deal could “end up making two people happy and 130,000 [people] and many clients concerned and destabilized.”

“Mergers of equals usually don't do well,” Sri Zaheer, dean of the University of Minnesota's Carlson School of Management told The Wall Street Journal. “You can get completely tied up in knots saying everything has to be completely balanced.”

Effect on PR
Neither of the soon-to-be co-CEOs of Publicis Omnicom Group spoke about plans for their PR agencies at Sunday's press event. However, Richard Edelman, whose eponymous firm is the largest in the world, blogged Monday morning that Publicis Omnicom's PR firms should get used to the idea of joining forces.

“The smaller PR firms within either holding company should expect to be merged. Note that Omnicom has done this before with Ketchum and Pleon or Gavin Anderson and Kreab,” he said. “PR will not be a focus area; it will be part of the supporting cast.”

The tech sector's influence on advertising
At Sunday's press conference in Paris, Omnicom CEO John Wren and Publicis CEO Maurice Levy noted the impact that social media giants like Facebook and digital heavyweights like Google have had on the advertising industry. Wren pointed out that these companies weren't on their radars even five years ago.

The Guardian called the deal “a deadly serious attempt to create a counterpoint to balance the dwindling power of traditional marketing communications in a world now dominated by Google and Facebook.”

The New York Times noted Sunday that the merger “signals that advertising is now firmly in the business of Big Data.” It added that while Omnicom and Publicis had combined 2012 revenue of $22.7 billion, “no ad company comes close to the $50 billion in revenue that Google made last year, largely on the strength of its advertising business.”

ZDNet's Tom Foremski says the deal will result in “a huge shift in buying power. It will spell future problems for Google and Facebook. It will be interesting to see if they lobby against the merger's approval. They should, but WPP shouldn't, and likely won't.”

A bigger company also means a larger partner for Google, noted TechCrunch. The site pointed out that “if Google is the world's biggest digital advertising network, the merger of these two will create an advertising megacorp that will be the world's biggest provider of advertising to feed that machine.”

On the other hand, Simulmedia's Dave Morgan told AllThingsD that the merger won't mean much to the technology world. “These aren't technology companies, and you don't get better tech development out of consolidation. You're not going to create the next MediaMath, or Videology, or Facebook, or Google out of this,” he told the website.

Staff cuts
Despite Wren dismissing layoffs as a driver of the merger on Sunday, Business Insider's Jim Edwards says to expect the combined company to trim staff to meet its goal of $500 million in efficiencies. “If you assume the fully loaded cost of an employee is about $200,000 per year (including benefits), then that could mean up to 1,500 jobs lost,” he said.

Regulatory hurdles
Bert Foer, president of the American Antitrust Institute, told Bloomberg that corporate clients will probably oppose the deal, noting that “the merged firm is going to be able to influence strategy for an entire industry.” Bloomberg's story also noted that it is not clear if the Federal Trade Commission or the Justice Department's antitrust division will review the combination in the US.

Regulatory scrutiny is expected on the other side of the Atlantic, as well. French regulators blocked Yahoo's attempt to acquire a majority stake in DailyMotion, a French online video giant. The deal also meets thresholds for UK officials to investigate.

Client pushback
Both CEOs have downplayed client unhappiness with the merger, saying they have received only positive feedback as of yet. However, The Wall Street Journal's Moneybeat reported that one analyst said “if two top ad agencies combined, they should expect to lose about 8% to 10% of combined revenues because of conflict clients.”

What's next for WPP?
Having been knocked from the top spot, will WPP chief Martin Sorrell go on a spending spree of his own? Shares of WPP were up Monday morning in anticipation of his next move. The Economist predicted that “given his track record, it will be no surprise if [Sorrell] soon pulls another deal out of his hat to return his firm to the top of the Mad Men league.”

Davos deal making  
Bloomberg Businessweek reported Monday that Wren and Levy first began discussing a possible deal at Davos six months ago, noting that Levy wanted to bolster his legacy by growing Publicis before he retires.

Big banks on the outside
The merger was also unusual in that large investment banks such as Goldman Sachs Group and Deutsche Bank didn't play a role in the deal, Bloomberg noted. Instead boutique Moelis & Co. and Rothschild handled the deal.

Would you like to post a comment?

Please Sign in or register.

News by email...