Publicis CEO Sees More Advertising Market Consolidation

Publicis Chief Executive Officer Maurice Levy, whose company has made more than a dozen acquisitions this year, predicts more consolidation in the advertising industry even if some prices, like those for London’s Aegis Plc (AGS) and the U.S.’s AKQA, are too high.

Levy said Publicis looked at buying both Aegis, which was acquired by Dentsu Inc. last week for 3.16 billion pounds ($5 billion) and AKQA, which WPP Plc (WPP) agreed to buy late last month for $540 million.

“On both companies, we decided to pass, considering that we have no strategic issues with those two assets,” Levy said in an interview last night. “We also considered the price paid was too high.”

Publicis, the Paris-based owner of advertising agencies including Leo Burnett and Saatchi & Saatchi, will continue to expand by buying digital assets and companies in fast-growing markets. First-half profit at the world’s third-largest advertising company rose 19 percent, though organic growth, which strips out effects from acquisitions and mergers, rose 2.8 percent, as clients cut spending amid the European debt crisis and it lost a $3 billion annual advertising contract with General Motors. (GM)

Levy, who earlier this year warned that growth would slow in the second quarter, said Publicis expects “a rebound that will give us growth that is expected to be higher than in the first quarter.”

Health care has been the worst performing segment for the advertising business, he said, as many of the big pharmaceutical companies faced restructuring.

New Business

Net income for first half was 275 million euros ($337 million), while revenue rose 14 percent to 3.08 billion euros. The company won $1.8 billion of net new business in the first half from clients including Kraft Foods, Subway and Nickelodeon. Publicis is targeting 75 percent of revenue to come from digital companies and fast-growing markets in the medium term.

Publicis fell 1.3 percent to 37.95 euros at 9:06 a.m. Paris time. It had advanced 8.2 percent this year through yesterday.

The most notable of Publicis’s acquisitions this year was the U.K.’s Bartle Bogle Hegarty, the ad agency behind the Johnnie Walker “Keep Walking” campaign and Levi Strauss & Co.’s “Flat Eric.”

Levy said last week’s agreement by Japan’s Dentsu (4324) to acquire Aegis was a smart move. “They paid a very full price but it makes strategic sense,” he said. “I’m not sure there’s a lot of synergies but Dentsu was looking for many years at the possibility of becoming a global player.” The move places Dentsu and Aegis among the largest advertising companies in the world such as WPP, Publicis and Omnicom Group Inc. (OMC)

Succession

Levy, who has discussed stepping down from his role at Publicis in recent years, declined to say when he might leave though he will assist the nominating committee in choosing a successor as well as recommend his replacement.

Levy came under criticism from French politicians earlier this year after shareholders at Publicis voted to approve 16.2 million euros in deferred compensation.

“The shareholders voted in favor of my compensation and despite the fact French politicians criticized it, at the AGM, they clearly supported me and no one voiced against my compensation,” Levy said. He added that he advocates the wealthy, including himself, paying heavier taxes.

Shareholders at WPP voted against the renumeration package of CEO Martin Sorrell last month, which included a 56 percent increase. Sorrell’s pay package, including long-term incentives, was worth 11.6 million pounds last year, making him the second- highest paid company head in Britain’s FTSE 100.

Slowing Growth

The global advertising industry is predicted to grow 4.3 percent this year, down from an earlier forecast for 4.8 percent, researcher ZenithOptimedia said in June. Marketing spending slowed in April and May amid fears that Greece would leave the European Union, it said.

WPP advertising researcher GroupM today cut its forecast for worldwide ad growth in 2012 to 5.1 percent from 6.3 percent, citing a decline in ad investment of 8.8 percent in Greece, Ireland, Italy, Portugal and Spain. Ad spending in the U.S. is predicted to grow 3.6 percent, from a 4 percent forecast late last year.

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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