The two announced a merger on Sunday that would create the world’s biggest family of agencies, with a stock market value of $35.1 billion and more than 130,000 employees.
In the early going at least, the new Publicis Omnicom Group would have co-chief executives: John D. Wren of Omnicom, based in New York, and Maurice Lévy of Publicis, based in Paris. But after 30 months, Mr. Wren, who is 60, would become sole chief executive and Mr. Lévy, 71, would be nonexecutive chairman.
On Sunday, Mr. Lévy and Mr. Wren said their deal sprung from a casual conversation six months ago during a social encounter. Then on further reflection, Mr. Lévy joked, “it looked like it was not that stupid after all.”
If the merger passes muster with shareholders and government officials, the new conglomerate’s combined revenues, which totaled $22.7 billion last year, would be far greater than the $16 billion in revenues for WPP of London, the current industry leader.
Publicis is considered a French national champion, and French officials have been active during President François Hollande’s tenure about protecting its business icons from foreign dominance. It was not immediately clear what position Mr. Hollande’s government might take on the merger. Calls to Élysée Palace over the weekend were not returned.
At a news conference, Mr. Lévy said the companies informed the French government of their plans on Saturday and had received “tremendous support” from officials. “We are not owned by the French government,” Mr. Lévy said, “yet we are one of the iconic companies in France.”
He said that the combined companies wanted a neutral third country as the place to register the new holding company. They ruled out Ireland and Luxembourg, Mr. Lévy said, to avoid the appearance that they were seeking a tax haven. They chose the Netherlands — which at 25 percent has a nominal corporate income tax rate that is higher than Ireland’s, but below the 33.33 percent rate in France and the 40 percent rate in the United States, according to the global accounting firm KPMG. Mr. Lévy said the companies would keep their headquarters in both Paris and New York to avoid the impression that Publicis would be “swallowed” by an American company — something that he said would not be accepted in France.
In a statement, Mr. Lévy cited technological advancements in advertising and the rise of so-called Big Data — the ability to amass larger volumes of consumer information and make money from it in various ways — as reasons for the merger.
“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,” he said. “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.”
Mr. Wren also stressed the importance of digital technology to advertising’s future. “Everything three years from now is going to be digital,” he said. “Everything that we do, even billboards nowadays are digital or become digital.”
The merger would bring under one roof separate networks of ad agencies — including BBDO, TBWA and DDB under Omnicom, and Leo Burnett and Saatchi Saatchi under Publicis. Collectively, the conglomerates represent some of the world’s largest brands, including ATT, Visa and Pepsi at Omnicom and McDonald’s, Coca-Cola and Walmart at Publicis.
Shareholders of each company will hold 50 percent of the equity in the new company, which will be listed on the New York Stock Exchange, Euronext Paris and included in the Standard Poor’s 500-stock index and the CAC 40 in Paris. A single board of directors will include Mr. Wren and Mr. Lévy and seven representatives from each of the two merging companies.
The executives said that they hoped the deal would be completed later this year, or early next year, depending on the regulatory approvals.
At least one competitor was willing to comment on Sunday — if only to deride the merger strategy. David Jones, the chief executive of Havas, a competing French advertising holding company, referred the deal as “an industrial merger in the digital age.”
“Clients today want us to be faster, more agile, more nimble and more entrepreneurial — not bigger and more bureaucratic and more complex,” Mr. Jones said in a statement.
Mr. Jones said the advertising industry’s “obsession with mergers and acquisitions” was out of sync with how the other technology companies operate. “The industry’s obsession with mergers and acquisitions still amazes me particularly in a world where digital and technology have made scale irrelevant.”
He noted that the photo-sharing service Instagram has 32 employees, but 140 million users. Facebook, he said, has but 5,000 employees supporting one billion users. “In a people business, mergers and acquisitions rarely create value in the way they do in industrial businesses,” Mr. Jones said.
Earlier this year, France’s industrial renewal minister, Arnaud Montebourg, scuttled a deal by Yahoo to take a 75 percent stake in DailyMotion, a French Web video start-up in which the government holds a 27 percent share. Warning that Yahoo would “devour” DailyMotion, he insisted that Yahoo reduce its stake to 50 percent, causing Yahoo to walk away.
But Mr. Lévy might be in a better position to finesse any government resistance to the loss of a national icon. He is one of the best-connected businessmen in France and has cultivated relationships with each administration since he joined Publicis in 1987.
Despite his clout, Mr. Lévy has been a polarizing figure to the French public, coming under fire for receiving multimillion-euro pay packages that are among the highest of any French executive. His pay — 16 million euros last year — was a flash point during the 2012 presidential elections, when Mr. Hollande slammed what he called excessive executive pay and called on the rich to pay more taxes.
Article source: http://www.nytimes.com/2013/07/29/business/media/advertising-giants-announce-35-1-billion-merger.html?partner=rss&emc=rss
