Merger of Omnicom, Publicis will shake up Chicago ad market
BY SANDRA GUY Staff Reporter email@example.com July 28, 2013 9:22AM
Maurice Levy, left, chief executive of French advertising group Publicis, and John Wren, head of Omnicom Group pose during a joint news conference in Paris, France, Sunday, July 28, 2013. Publicis and Omnicom have announced merger plans to create the worl
Updated: August 30, 2013 6:54AM
A surprising announcement Sunday of the merger of two of the world’s largest advertising agencies may not lead to Chicago layoffs immediately, but it will shake up the local market by putting fierce rivals such as Leo Burnett and DDD Chicago under one roof and raising questions about who’s in charge, experts say.
Omnicom owns locally prominent firms such as DDB Chicago and Energy BBDO, and Publicis owns Digitas and Leo Burnett, among others. The companies also own public relations companies such as Fleishman-Hillard, Ketchum, MSL Group and Porter Novelli.
Companies that hire the advertising and PR firms also will be affected. Rivals such as Pepsi and Coca-Cola and Oak Brook-based McDonald’s and YUM Brands, owner of Taco Bell, KFC and Pizza Hut, will see their ad agencies fall under single ownership.
The $35 billion deal between New York-based Omnicom and Paris-based Publicis Groupe, already the second- and third-largest marketing groups globally, will create the world’s largest marketing group by revenues and equity value. Some experts say this is just the start of more consolidation as traditional agencies fight smaller, more nimble and more social media-savvy rivals. The merger also will help Omnicom and Publicis expand into fast-growing markets in Asia and Latin America.
Omnicom and Publicis called their deal a “merger of equals” that will result in cost savings of $500 million, and experts speculate that it will lead to further mashups among ad agencies such as WPP Group, formerly the world’s largest, and possibly Havas and Vivendi.
Publicis Omnicom Group will have 130,000 employees worldwide; $23 billion in combined revenue, and a $35 billion market capitalization, It will be based in the Netherlands but keep operational offices in Paris and New York.
Omnicom, founded in 1986, reported a 2012 profit of nearly $1 billion on revenue of $14.22 billion. Earlier this month, the Madison Avenue giant posted second-quarter earnings that topped analysts’ average forecast, though revenue growth of 2 percent fell just short of expectations.
Omnicom generates just over half of its revenue from U.S. clients, and about one-quarter from European and British markets combined. The company’s stock has risen 31 percent in the last 12 months, recently peaking at $67.43 on the New York Stock Exchange.
Publicis and Omnicom employ a combined 3,100 in the Chicago area among their biggest advertising and public relations shops, according to experts and publicly available lists.
Experts say they expect the companies to continue to operate as their own independent businesses; that cost-cutting will first hit corporate jobs such as legal, accounting and IT at the headquarters level, and that the public relations companies might be most ripe for downsizing.
Peter Cosco, CEO of 4 Forces Group, a marketing outsourcing firm based in Stamford, Conn., said Sunday that the term “merger of equals” makes him nervous.
The companies said Sunday that Publicis CEO Maurice Levy, 71, and Omnicom head John Wren, 60, will serve as co-CEOs for the first two and a half years. After that, Levy will become non-executive chairman and Wren will continue as CEO.
But Cosco said 50-50 mergers rarely come true, and if he were a Chicago employee at one of the ad or PR firms, he would be asking many questions.
“You don’t know who is in power,” he said. “Will there be the same bosses? Will I get a new team? Does this affect my compensation and benefits? Are folks in Chicago who reported to New York now answering to Paris? What is the rule book for operating? What do I tell my clients? Who are the winners and who are the losers?”
Clients such as Allstate, Boeing, McDonald’s, State Farm and Wm. Wrigley Jr. Co. realize that the advertising firms pit their own shops against each other, but they, too will have questions.
“It is no longer a ‘given’ that companies call an ad agency with experienced creative, ad-buying and digital teams,” Cosco said. “They may decide they are better off hiring a small creative shop.”
And shareholders of Omnicom and Publicis should drill down into the details of the companies’ claim to save $500 million, Cosco said.
“This seems like a defensive strategy,” he said. “They really haven’t figured out how they are going to grow.”
Ron Culp, former head of Ketchum’s Chicago office and professional director of DePaul University’s graduate program in public relations and advertising, said the local agencies will continue to operate independently and compete against one another for business.
That’s partly because Omnicom has long had a laissez-faire attitude that treats its agencies as independent profit centers, as long as they deliver their numbers.
“You deliver the numbers. We leave you alone,” he said. “In order to deliver the numbers, each has to be very aggressive in how it approaches winning new business.”
Michael Corty, senior equity analyst at Chicago-based Morningstar, said the advertising agencies will have to reassure major clients such as McDonald’s and Johnson & Johnson that their marketing work will remain focused, but the deal should help leverage their digital strength.
“Digital is part of every marketing campaign,” he said, “and scale matters.”
Omnicom will benefit from Publicis’ strategic shift in the last few years toward digital operations, as the French company beefed up its digital marketing profile with the acquisitions of Digitas, Razorfish, Rosetta, Big Fuel and LBi. Publicis, which had revenue of $8.78 billion in 2012, had targeted generating 75 percent of its revenue in digital and fast-growing countries by 2018, according to a recent investor presentation.