Publicis Omnicom merger – do advertising firms have to be giants to deal with Google?

29th July 2013

Is it originality that counts in advertising anymore? Or do you need global reach and size so you can match up to the giants of internet search?

The logic behind the huge $35bn merger of Publicis and Omnicom, already very big firms within the advertising and marketing world, is certainly predicated on the latter view, though neither firm would say they are abandoning creativity either.

If the merger goes ahead the French Publicis and US Omnicom would dwarf the current number one WPP led by one of the world’s most famous ad men Martin Sorrell.

The new firm will have a Dutch holding company but retain the Paris and New York headquarters with a primary listing in New York and a secondary listing on Euronext Paris.

Alongside its two listings, it will also have two co-chief executives, Maurice Levy and John Wren, certainly for the next 30 months after which Monsieur Levy will become chairman.

The deal has raised eyebrows among commentators and industry watchers who suggest it could lead to client conflicts and regulatory challenges.

It comes at the end of the period of share price success for both businesses with both up around 30% in the last 12 months so the respective investors may be asking themselves why bother with such a disruptive plan.

Clearly cultural issues will be very important in judging the success of the merger. However both firms already run a host of sub-brands across many markets, partly in a bid to preserve at least a little of that Mad Man magic, so perhaps the pessimists are being too pessimistic.

But at Mindful Money we think the most interesting issue will be whether the new group can utilise its buying power to get more bang for its advertising buck in relation not just to Google but all manner of other media outlets. Even now digital isn’t everything in advertising and marketing, in fact it may still be less than a quarter of global ad revenues. It still includes everything from posters at train stations to TV and newspapers and magazines.

But if the new giant ad firm deliver on price, perhaps this merger can deliver a premium for investors. But such buying power will surely pique the interest of global regulators too as indeed Martin Sorrell warned just this morning.

And neither Google nor WPP are renowned for taking a business challenge lying down. Fascinating to watch. Difficult to know what it means for anyone’s broader investment strategy just yet while anyone considering buying shares the new group might do well to watch how the story develops in the next few months.

 

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