The transatlantic tie-up of Publicis Groupe SA (PUB) and Omnicom Group Inc. (OMC:US) pushes the reigning king of adland, WPP Plc’s Martin Sorrell, into a spot he hasn’t been in in over four years: runner-up.
Publicis Chief Executive Officer Maurice Levy and Omnicom CEO John Wren toasted the unveiling of Publicis Omnicom Group with Ruinart champagne atop Publicis’s Paris headquarters yesterday, celebrating a merger due to unseat London-based WPP and its 68-year-old founder Sorrell, widely seen as the face and mouth of the industry.
“What will WPP say in a world where they’re not the biggest? A version of Omnicom agency DDB’s line: When you’re only No. 2, you try harder?” said Nick Jefferson, managing director at marketing and advertising company Gyro London. Sorrell “has worked hard to become the ‘go-to guy’ for advertisers, and for anyone who wants to know how advertisers are thinking and -- crucially -- spending.”
WPP (WPP) has been the biggest ad company since its 2008 acquisition of Taylor Nelson Sofres Plc. Yesterday’s announcement, billed as a “merger of equals” by third-ranked Publicis and No. 2 Omnicom, ushered in a behemoth with a market value of $35 billion and left competitors and analysts alike questioning both its logic and what the future will look like with Sorrell’s long-time nemesisLevy atop the heap.
Publicis shares rose 0.1 percent at 59.40 euros in Paris, while Omnicom fell 0.6 percent to $64.75 at the close in New York. WPP shares gained in London, rising as much as 4.8 percent, and closed up 0.6 percent at 1,182 pence.
Levy, appearing with Wren in a Bloomberg TV interview today with Tom Keene, pointed to the share jump the companies had. “This is showing clearly the market is believing in a further consolidation and they believe this is something that’s going to happen,” he said.
“Maurice Levy engineered an incredible deal,” Sorrell said in a separate Bloomberg TV interview today with Tom Keene.
It’s “a merger of unequals,” Sorrell said, as New York-based Omnicom’s 2012 revenue came to $14.2 billion while Publicis brought in $8.8 billion in sales. “The last merger of equals we had, I think, was DaimlerChrysler, which did not go too well to put it mildly.”
In the nine years after Daimler-Benz AG bought Chrysler in 1998 to create a global carmaker, DaimlerChrysler lost $12.6 billion in market value.
Sorrell has become known for more than his ad operations, espousing theories on economics and politics at the World Economic Forum in Davos, Switzerland, and coining phrases like “bathtub-shaped” economic recoveries, “dead-cat bounce” for company growth, and “gray swans,” which foreshadow trouble.
He was knighted in 2000 and carried the Olympic flame at last year’s games in London for a stretch. Sorrell takes his role as leader of today’s “Mad Men” seriously and is a regular on-air guest on Bloomberg TV and CNBC, and opines in the press on everything from fashion and dining to taxes on the wealthy. WPP earnings statements include pages-long forecasts on the economy, opinions on world politics and detailed breakdowns on the ad industry.
Sorrell “applied to be the CFO,” Levy joked in the Bloomberg TV interview. “If Sir Martin had nothing bad to say then in that case, I’d start thinking, ‘What’s wrong with our organization,” he said.
“Sorrell is going to be forced to think about what this deal means and how it could affect the legacy he wants to leave behind,” said Claudio Aspesi, a media analyst at Sanford C. Bernstein in London. “Though he could go out and buy a large ad agency, I think he’s more complex and since he’s a fan of data, we could see him go for another market researcher or a Google-like company on a smaller scale.”
Yesterday Levy and Wren, who will serve as co-CEOs for 30 months after which Levy will become chairman, hugged, finished each other’s sentences, and after their presentation, celebrated with champagne, as Levy said they didn’t have rice to throw “to celebrate this wedding.”
The two men “get along very well,” Levy said, adding “we agreed within 30 seconds” every time they discussed the deal, expected to be completed by the first quarter of 2014.
Levy and Wren may find things difficult after yesterday’s toasts, Sorrell said today, calling the co-CEO structure “an uncomfortable structure.”
First they have to sort out clients and get regulators to agree. Publicis has a large portfolio of digital assets including Digitas, LBi International and Razorfish, as well as agencies in emerging markets. Omnicom’s strength lies in the U.S. Competing accounts -- Publicis counts Coca-Cola Co. on its roster and Omnicom PepsiCo Inc. -- and overlaps including McDonald’s Corp. and Procter & Gamble Co. need to be resolved.
“Marketers may not like this, but as long as there is some threshold of managing services issues, such as transferring executives from competing accounts internally and not sharing data, most advertisers are accepting,” said Brian Wieser, a media analyst at Pivotal Research Group LLC in New York.
Other competitors said they’re also planning how to take advantage of the new situation and questioning the logic.
“Digital and technology have made scale irrelevant,” Havas SA CEO David Jones said in an e-mail. “That’s not a good thing for either Omnicom or Publicis but it is a good thing for their competitors -- the first thing we’ll be doing Monday is getting out both their client lists and going through the senior talent.”
Sorrell is one of the ad industry’s biggest consolidators with past purchases such as Young & Rubicam in 2000 and the Grey ad agency in 2005. He joined WPP when it was still a British shopping-basket manufacturer known as Wire and Plastic Products, and began buying ad companies.
Levy, 71, joined Publicis in 1971 as the IT director a year after it went public and has helmed the company since 1975. He became heir apparent after running into the burning headquarters to save computer records, prompting founder Marcel Bleustein-Blanchet to call him “my loyal warrior.”
Alex DeGroote, an analyst at Panmure Gordon & Co., said Sorrell may not go without a fight. “I wouldn’t be surprised if he tried to disturb this somehow,” DeGroote said.
Sorrell and Levy have traded barbs over the years, poking fun at profit margins and their companies’ relationships with Google Inc. Sorrell has often hinted that Publicis should merge with the No. 4 advertising company, Interpublic Group of Cos.
“This must come as one of the biggest surprises of all time for the sector,” said Keith Hunt, managing partner at Results International, which advises on mergers. “You can bet a lot of people at the top of both networks will be feeling massively unsettled hearing this news over a summer weekend.”
Sorrell got one more dig in today, noting how the code name for the deal, “Color,” which represented orange for Publicis and purple for Omnicom, creates a muddy brown or gray color when mixed together.
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