July 27 (Bloomberg) -- Publicis Groupe SA and Omnicom Group Inc., two of the world’s biggest advertising companies, are in late-stage talks about a combination, according to people with knowledge of the situation.
The deal will probably be structured as a merger of equals with little to no premium to current share prices, said one of the people, who asked not to be named because the deliberations are private. Publicis Chief Executive Officer Maurice Levy and Omnicom CEO John Wren will serve as co-CEOs of the new firm initially, with Levy later becoming chairman, the people said.
Together, Paris-based Publicis and New York-based Omnicom would be the largest advertising company in the world, topping current leader WPP Plc.
Publicis today sent an invitation to a press conference regarding a “major corporate announcement” at its Paris headquarters at 2 p.m. local time tomorrow. Discussions between the two companies have been underway for several months, one of the people said.
A merged entity would have a market value of more than $30 billion. That size and geographic reach would give it more heft to negotiate better ad rates for media placements on television, the Internet and in print for its clients. A deal could also act as a hedge against the possibility of losing clients since each holding company owns dozens of ad agencies.
A combination has “significant industrial logic to it,” Brian Wieser, an analyst with Pivotal Research Group LLC in Los Angeles, said yesterday in an e-mail about the possible merger. “It may contribute to a reduced degree of competition when services are priced for clients,” he said.
Peggy Nahmany, a spokeswoman for Publicis, didn’t return calls seeking comment, nor did Stephanie Constand-Atellian at Publicis’s investor relations department. Joanne Trout, a spokeswoman at Omnicom, declined to comment.
Publicis, Omnicom and London-based WPP have all grown through consolidation in recent decades as they vie with each other for accounts. Ad spending across the globe may rise 5 percent next year to $543.9 billion, according to ZenithOptimedia, a research firm that’s part of Publicis.
A potential combination also is likely to attract regulatory scrutiny in both Europe and the U.S. given the operations’ overlap. A combined Omnicom and Publicis would have spent a total of $3.34 billion in media placements on behalf of clients last year, data compiled by Advertising Age show. That would have accounted for 41 percent of total spending by the top 10 media agencies in the world. WPP, by contrast, made up 32 percent at $2.6 billion.
Omnicom shares advanced 1.3 percent yesterday in New York to close at $65.11, for a market capitalization of $16.7 billion. Publicis rose 1.5 percent to 59.35 euros in Paris trading, for a market value of 12.5 billion euros ($16.6 billion).
Publicis said July 18 that first-half profit rose 15 percent, aided by growth in the U.S. and revenue from digital activities. Net income climbed to 314 million euros ($417 million) from a year earlier, while revenue jumped to 3.35 billion euros, beating analysts’ projections.
Publicis CEO Levy has spurred growth by acquiring digital ad agencies as well as companies in emerging markets such as China. The company owns the Leo Burnett and Saatchi & Saatchi ad agencies.
Omnicom, founded in 1986, generated more than $14 billion in revenue last year through advertising brands such as BBDO Worldwide.
A merger would be sure to raise concerns about client conflicts, a long-running issue within major advertising holding companies. An advertiser wouldn’t want to pay agencies that would also be doing work for a competitor. “Potentially, that’s something you can solve, that’s why the holding-company structure exists,” said James Dix, an analyst with Wedbush Securities Inc. in Los Angeles.
Holding companies such as Omnicom and Publicis create networks of agencies and public-relations firms within the larger company. These networks are designed to work independently from one another so that competing companies are placed in separate networks.
Omnicom and Publicis each have at least three networks. Omnicom’s include BBDO Worldwide, TBWA Worldwide and DDB Worldwide Communications Group. Publicis owns networks Publicis Worldwide, Leo Burnett Worldwide and DigitasLBi.
Fewer holding companies competing for major advertisers could lead to more realistic pricing for advertising and communications services, Pivotal’s Wieser said. Currently, the world’s largest advertisers “are often serviced at or below cost in order to secure a basic level of operating scale in some markets.”
Omnicom’s bigger U.S. business and Publicis’s aggressive expansion in emerging markets also add potential benefits in a merger, Wedbush’s Dix said.
Even so, “you would still have to merge different cultures and strategies, and that may be difficult.”
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