WPP, Dentsu Circle for Business From Publicis-Omnicom Merger

As Publicis Groupe SA (PUB) and Omnicom Group Inc. (OMC) work through regulatory delays to their plan to create a new leader in advertising, rivals say they’re picking up disgruntled customers and ad executives who fail to see how the merger helps them.

“Clients don’t understand the benefit for them,” Dentsu Inc. (4324) Executive Vice President Tim Andree said at an investor conference in Barcelona yesterday. “That’s a dangerous position to be in.” Tokyo-based Dentsu said it’s won new businesses from the pending deal.

Publicis Omnicom Group co-Chief Executive Officers Maurice Levy and John Wren, also in Barcelona, said completion of the merger may slip into the second quarter of next year, pushing back the first-quarter timeframe announced in July. Competitors including current market leader WPP Plc (WPP) and Dentsu are taking advantage of the delay to circle for clients and talent.

WPP CEO Martin Sorrell forecast a “considerable move of executives to our company.”

“There’s a lot of movement in the industry and this sort of movement stimulates it further,” he said in an interview at the conference, organized by Morgan Stanley.

Wren downplayed the risk, saying he didn’t see “a great threat coming from client conflicts. People have tried to promote that but it’s not real.”

‘Emotional Aspect’

Publicis clients’ reaction to the merger -- an all-stock transaction that will create a company with $23 billion in revenue -- “has been absolutely fantastic,” Levy said. Still, there’s an “emotional aspect” that Publicis must handle “carefully,” he said.

Interpublic Group of Cos. CEO Michael Roth, also at the conference yesterday, said customers he’s spoken with have also questioned the merger.

“Clients say, ‘We’re not sure what this transaction means to us, we’ll wait and see,’” he said. “When you have companies of that size coming together there’s bound to be disruption. We’ve got to make sure we position ourselves because that creates opportunities for our competitors also.”

WPP, which owns the Ogilvy & Mather and Grey ad agencies, has denied reports it’s considering buying a large competitor to hold onto the No. 1 position. Still, speculation persists that WPP or Dentsu, which has bought Aegis Group Plc for $4.9 billion, will acquire a company such as IPG or Havas (HAV) SA.

WPP Plans

Sorrell dismissed IPG and Havas as “significantly overvalued” and reiterated he wasn’t interested in buying either. He said WPP will continue focusing on small to mid-sized targets, primarily in Asia, Brazil and Africa, and predicted WPP’s acquisition spending could rise to as high as 600 million pounds ($969 million) in 2014 “if we find some really interesting ones.”

WPP rose 1.6 percent to 1,370 pence at 8:35 a.m. in London. Publicis climbed less than 1 percent to 64.49 euros and Havas added 0.8 percent to 5.90 euros in Paris.

Dentsu also has targets in mind, with Andree saying there are as many as 60 deals in the pipeline, though none as large as this year’s Aegis deal. “We have the flexibility to do another acquisition, but I want to make sure we remain disciplined with our strategy,” he said.

Levy said he doesn’t anticipate “any major issue” to come up in the regulatory reviews in Europe, China and the U.S. Publicis and Omnicom have said that by merging, they’ll be able to offer clients integrated campaigns and advanced technology while containing costs.

“The target for synergies announced by Publicis and Omnicom has the potential for destabilizing talent,” said Dentsu’s Andree. “That of course is bad news for clients.”

When asked during the conference about the logic behind the Publicis-Omnicom combination, Sorrell said it may just be about tax and financial benefits.

“Maybe the benefits are just getting out of France, getting the fiscal benefits of being in Amsterdam,” he said, adding the merger “certainly has disturbed the client base and certainly has disturbed staff.”

To contact the reporters on this story: Marie Mawad in Barcelona at mmawad1@bloomberg.net; 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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