Publicis And Omnicom Announce Plans To Form $35.1B Advertising Leviathan (Regulators Willing)

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Publicis And Omnicom Announce Plans To Form $35.1B Advertising Leviathan (Regulators Willing)

Today Publicis and Omnicom, two of the “big five” global advertising and marketing agencies, announced a “merger of equals”, in which the two will combine to create a powerhouse with some $22.7 billion in annual revenues and a market capitalization of $35.1 billion. The pair say that the new Publicis Omnicom Group will be jointly run by the two existing CEOs, John Wren from Omnicom and Maurice Levy from Publicis.

The confirmation — reports of which has been swirling earlier this week — was delivered today in a press conference on a sultry Sunday summer afternoon in Paris — a slightly oxymoronic setting for such a big megadeal. “For many years, we have had great respect for one another as well as for the companies we each lead. This respect has grown in the past few months as we have worked to make this combination a reality. We look forward to co-leading the combined company and are excited about what our people can achieve together for our clients and our shareholders,” the two said together.

The merger of these two will create an advertising megacorp twice the size of its nearest rival, WPP. While there are two other agencies in addition to these, Interpublic and Havas, these two are significantly smaller. This will lead inevitably to antitrust scrutinty from regulators, and may also spur more merger activities among other players.

Without a doubt, the history of the ad industry has been one of ongoing consolidation, and in that regard this seems like a logical and inevitable step. Some of the agencies that were once rivals and will now coexist under one owner will include BBDO, Saatchi & Saatchi, DDB, Leo Burnett, Razorfish, Publicis Worldwide,

Fleishman-Hillard, DigitasLBi, Ketchum, StarcomMediaVest, OMD, BBH, Interbrand and ZenithOptimedia.

But while this plays to type in some regards, the world of advertising and marketing is also up against growth of other disruptive forces, for example the change in consumer habits brought about by the internet. That has taken the rug out from some of the more traditional formats for advertising, such as print media, and pushed more spend towards digital formats like the internet and mobile advertising.

These are still relatively smaller players in the wider advertising ecosystem: worldwide there will be about $519 billion spent in marketing and advertising this year across all mediums. But if you break out one of the newer areas like mobile advertising, it’s expected to be just under $9 billion this year globally, according to the IAB.

TV advertising dominates today, Nielsen noted earlier this week, but it has grown by just 3.5% so far this year while Internet has gone up by 26.3%. The IAB estimated that mobile will go up by 83% this year.

Still, the smart money sees the writing on the wall. Publicis and Omnicom’s rival WPP projects that by 2018 40% of ad spend that it oversees will come from digital.

More to come. Release below.

OMNICOM AND PUBLICIS GROUPE TO MERGE

Merger of equals to create Publicis Omnicom Group, a best-in-class

communications, advertising, marketing and digital services company

with combined 2012 revenue of $22.7 billion / €17.7 billion

Combined market capitalization of $35.1 billion / €26.5 billion

New York and Paris, July 28, 2013 – Omnicom Group Inc. (NYSE: OMC) and

Publicis Groupe SA (Euronext Paris: FR0000130577) today announced that they

have signed a definitive agreement for a merger of equals, creating the world’s

leading company in communications, advertising, marketing and digital services,

with combined 2012 revenue of $22.7 billion / €17.7 billion. Based on closing prices

on July 26, 2013, Publicis Omnicom Group will have a combined equity market

capitalization of approximately $35.1 billion / €26.5 billion. The merged group of

more than 130,000 employees will be exceptionally well positioned to serve clients’

evolving needs, helping them to build their brands and grow their businesses in the

rapidly changing communications landscape.

The combination, which has been unanimously approved by the Boards of Directors

of both companies, brings together the most extensive portfolio of best-in-class

agencies offering clients the industry’s leading talent across disciplines and

geographies. Publicis Omnicom Group will include such iconic agency brands as

BBDO, Saatchi & Saatchi, DDB, Leo Burnett, TBWA, Razorfish, Publicis Worldwide,

Fleishman-Hillard, DigitasLBi, Ketchum, StarcomMediaVest, OMD, BBH, Interbrand,

MSLGROUP, RAPP, Publicis Healthcare Communications Group (PHCG),

Proximity, Rosetta, CDM, ZenithOptimedia and Goodby, Silverstein & Partners, to

name just a few.

Maurice Lévy, Chairman and CEO of Publicis Groupe, said: “The communication and marketing landscape

has undergone dramatic changes in recent years including the exponential development of new media

giants, the explosion of Big Data, blurring of the roles of all players and profound changes in consumer

behavior. This evolution has created both great challenges and tremendous opportunities for clients. John

and I have conceived this merger to benefit our clients by bringing together the most comprehensive offering of analog and digital services. Equally important, it will offer our talented people new avenues for growth and success at the crossroads of strategic intelligence, creativity, science and technology.”

John Wren, CEO of Omnicom, said: “Both Maurice and I believe this new company reflects our vision of

retaining the best talent, attracting an incredible roster of clients and leading innovation. Omnicom and

Publicis Groupe are reshaping the industry by setting a new standard for supporting clients with integrated

messaging across marketing disciplines and geographies. This combination will enable us to leverage the

skills of our exceptionally talented people, our broad product offering, enhanced global footprint, and

tremendous roster of global and local clients. In short, we believe this is a merger that will set our new

company on a path to accelerated growth, with long-term benefits for clients, employees and shareholders.”

Mr. Wren & Mr. Lévy said jointly: “For many years, we have had great respect for one another as well as for

the companies we each lead. This respect has grown in the past few months as we have worked to make

this combination a reality. We look forward to co-leading the combined company and are excited about what our people can achieve together for our clients and our shareholders.”

Publicis Omnicom Group has been structured with balanced corporate governance consistent with the spirit of a merger of equals. Publicis Groupe and Omnicom’s CEOs will lead the company as co-CEOs through an initial integration and development period of 30 months, following which Mr. Lévy will become non-executive Chairman and Mr. Wren will continue as CEO. The company will have a single-tier board with 16 members, consisting of the two co-CEOs and seven non-executive directors from each company.

For the first year following the closing of the transaction, Bruce Crawford, currently Omnicom Chairman, will

be the non-executive Chairman of Publicis Omnicom Group. He will be succeeded by the current Publicis

Groupe Chairperson, Elisabeth Badinter, as non-executive Chairperson for the second year following the

closing of the transaction.

The transaction is expected to create significant value for shareholders. The new company’s broader

portfolio of agencies and services and deeper geographic footprint will allow the combined company to

accelerate revenue growth and create operating synergies. The future scalability and internal synergies of

the combined company are expected to generate efficiencies of $500 million / €377 million.

The transaction is a cross-border merger of equals under a holding company, Publicis Omnicom Group, in

The Netherlands. The Group’s operational head offices will continue to be based in Paris and New York.

The merger is expected to be tax-free to the shareholders of both companies. 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. Publicis Groupe shareholders will receive one

newly issued ordinary share of Publicis Omnicom Group for each Publicis Groupe share they own, together

with a special dividend of €1.00 per share. Omnicom shareholders will receive 0.813 newly issued ordinary

shares of Publicis Omnicom Group for each Omnicom share they own, together with a special dividend of

$2.00 per share. In addition, Omnicom shareholders will receive up to two regular quarterly dividends of

$0.40 per share if declared and the record date occurs prior to closing.

Ms. Badinter and family members as well as Mr. Lévy have entered into agreements in support of the

merger, as have Mr. Wren, Mr. Crawford, and Mr. Randall Weisenburger, Omnicom’s CFO.

Publicis Omnicom Group is expected to be listed on the NYSE and Euronext Paris, traded under the symbol

OMC, and to be included in the S&P 500 and CAC 40.

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.

Publicis Groupe and Omnicom have expressed the desire to have their shares start trading simultaneously

on the day of announcement. As a consequence and because of the time difference, Publicis Groupe has

asked Euronext Paris to postpone the trading of its shares to 9.30am New York time / 3.30pm Paris time.

Moelis & Company is financial advisor to Omnicom on the transaction. Rothschild is acting as financial

advisor to Publicis Groupe. Legal advisors to Omnicom are Latham & Watkins LLP and De Brauw

Blackstone Westbroek N.V. Legal advisors to Publicis Groupe are Wachtell, Lipton, Rosen & Katz; Darrois

Villey Maillot Brochier; and NautaDulith N.V. Jones Day provided counsel to Moelis & Company.

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