Publicis and Omnicom merge to create World's Biggest Advertising Company

L-R: Publicis Groupe CEO Maurice Lévy embraces Omnicom Group CEO John Wren during a press conference in Paris on July 28.

New York-based Omnicom Group and Paris-based Publicis Groupe, two of the largest global advertising agency holding companies, today confirmed that they will merge.

The merger which was announced on Sunday, will not only create the world's biggest advertising group, with combined market capitalization of $35.1 billion, but it will also put four of Chicago's largest advertising agencies into the same international holding company.

Chicago-based Leo Burnett is part of Publicis, as is Digitas Chicago. DDB Chicago and Energy BBDO are part of Omnicom. Once the merger is complete, likely by early next year, the four will join an extended family known as Publicis Omnicom Group, setting the stage for cooperation and consolidation.

The holding companies had combined revenue of roughly $23 billion in 2012; it will have a $35 billion market cap combined. The combined entity will trade on NYSE and Euronext Paris under symbol OMC.

The holding company will be based in the Netherlands and will maintain headquarters in New York and Paris. Publicis and Omnicom shareholders will each hold approximately 50% of the new company’s equity. The merged group will have more than 130,000 employees globally and will be larger than London-based WPP.

The companies said the transaction would create "significant value for shareholders" and is projected to generate efficiencies of $500 million, and generate the necessary scale to deal with technology changes that have challenged the advertising business in recent years.

"It will be able to face the exponential development of new Internet giants like Facebook and Google, changing consumer behaviour, the explosion of big data, as well as handle the blurring of roles of all the players in the market," Publicis Groupe Chairman and CEO Maurice Lévy said.

Lévy and Omnicom Chief Executive Officer, John Wren, will jointly lead the new company for the first 30 months, then Lévy will become nonexecutive chairman and Wren CEO.

The transaction marks a return of jumbo mergers and acquisitions among 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.

In 2011, Publicis agencies Digitas Chicago and Leo Burnett joined forces to win the $1.1 billion Sprint Nextel account, one of the biggest wins in Chicago advertising history.

DDB Chicago is the longtime lead agency for McDonald's, which will be one of the largest clients for the new Publicis Omnicom Group. Former DDB Chicago CEO Peter McGuinness, who left the advertising agency this month after less than two years at the helm to become chief brand and marketing officer at Chobani yogurt, sees strength in numbers for the expanded holding company in Chicago.

"From a client retention perspective and then also a new business perspective, it increases your odds of keeping it in the family," McGuinness said.

McGuinness said the projected efficiencies would likely be back office and the local agencies would remain separate. But the synergies would come into play in terms of resources at the holding company level.

He downplayed the potential for increased conflicts. Clients don't like their agencies having business ties to competitors. DDB Chicago is the lead agency for State Farm Insurance, while Leo Burnett handles Allstate. The rival insurance companies will be under the Publicis Omnicom banner in Chicago, but McGuinness thinks it won't be too close for comfort.

"I'm now on the client side, and that wouldn't bother me," McGuinness said. "I don't really think it's a big issue because those are very strong separate brands with their own unique heritages, their own unique management and their own unique creative officers."

Peter Krivkovich, Chicago-based president and CEO of Cramer-Krasselt, one of the largest independent agencies in the U.S., called the merger a brilliant move and thought it might benefit his firm as well.

"Clients, when they do reviews, they don't want to have five Publicis Omnicom agencies competing against each other," Krivkovich said. "They usually want a mix. That's why we've grown the way we have. We're put into the mix of reviews just so they have another perspective. In the end, it's going to be an opportunity as all of these guys begins to merge."