MEDIA powerhouses Publicis and Omnicom have agreed to merge, in a deal that will create the world’s largest advertising firm.
The companies, which spent several months in talks before yesterday’s announcement, generated a total of $22.7bn (£14.8bn) in revenues last year, and have a combined market value of $35.1bn.
Omnicom will keep its headquarters on Madison Avenue, at the heart of New York’s advertising business, while Publicis will retain a base in Paris. The firms employ a total of 130,000 people.
“It’s an extremely bold, brave and surprising move,” said Sir Martin Sorrell, whose London-listed firm WPP is set to lose its crown as the world’s biggest advertising company.
The firms expect the merger to produce $500m in savings, and plan to pay a special dividend of €1 for Publicis shareholders and $2 for Omnicom investors.
Maurice Levy, the Publicis chief executive, and Omnicom boss John Wren are in New York today to spell out the benefits of the deal, kicking off a roadshow ahead of a shareholder vote.
The firms aim to close the deal in the fourth quarter of 2013 or first quarter of 2014. After a 30-month transition period, Levy will step back from the co-CEO role and become chairman.
“[We] are excited about what our people can achieve together for our clients and our shareholders.” said Wren and Levy in a joint statement.
The two firms accounted for 31.5 per cent of the revenues generated by the 50 biggest media agencies worldwide last year, according to Advertising Age.
But the firms and bankers on the deal are confident that the merger will get approval from competition bodies in more than 40 countries. Levy believes the French government is supportive.
Analysts said the mega-merger could spark a round of consolidation among the biggest advertising groups, as they jostle for position in an industry rapidly shifting towards new media.
“What would have been unthinkable previously would now make sense,” said Pivotal Research analyst Brian Weiser.
Sorrell, however, said “an equilibrium may be starting to be established, which will generate further significant opportunities for WPP organically”.
But Havas boss David Jones was left unimpressed: “Clients today want us to be faster, more agile, more nimble and entrepreneurial, not bigger and more bureaucratic and more complex.”
The two firms have several competing companies on their books, including Coca-Cola and Pepsi.
Moelis & Company is advising Omnicom, while Rothschild is acting as adviser to Publicis.