The USD 35bn mega-merger announcement on 29th July of Omnicom and Publicis showed their Chief Executives John Wren and Maurice Levy both jubilant and evidently excited at the prospect of being at the helm of what is due to become the world’s largest marketing services business. The news failed however to generate the same level of excitement amongst their shareholders, as demonstrated by the insignificant 0.25% rise in the shares of Publicis on the Paris stock exchange, reflected by a similar lack of reaction in Omnicom’s share price on the other side of the Atlantic.
Is there a real business case behind this merger ?
Some analysts are predicting a wave of other mergers and market consolidation, as a domino effect following the Omnicom Publicis merger, but so far market opinion does not appear to share that view. Beyond the emotional hype, rational reasoning would lead us to thing that once a marketing company has reached a respectable size and quasi global presence, there is probably no compelling business case to justify a further quantum leap in size to become the behemoth of the marketing and advertising industry. Nonetheless, Publicis’ Maurice Levy argues that this merger is necessary to compete with digital giants such as Facebook or Google (a strange statement indeed as Google is currently a customer of Omnicom).
Levy goes on to say “if we want to create a portfolio of tools for our clients and not have them in the hands of other players, which is not in the interest of our clients, we had to do this deal”. That is a very altruistic way of positioning the aim of the merger, although I suspect that both Omnicom and Publicis each have the scale required to develop the said portfolio of tools. If that had been a sufficiently convincing explanation, the shares of both Publicis and Omnicom would have jumped on the stock exchange yesterday. That did not happen.
Playing down the conflict of interests
The sheer size and breadth of the combined group will mean its client base will comprise a number of fiercely competing brands which are unlikely to feel comfortable cohabitating under a same roof: is it really conceivable for a marketing group to have intimate knowledge of the strategic plans and consumer insights of The Coca-Cola Company whilst doing the same with Pepsi? And how about Nestlé versus Mars, or Microsoft versus Google?
Of course John Wren and Maurice Levy must have experienced an adrenalin kick when they made their announcement : the very thought of knocking Sir Martin Sorrell off his pedestal, as Chief Executive of the world’s current #1 marketing company WPP based in London, must be quite thrilling for these new Franco-American allies. But we have yet to see whether this mega-merger will be anything more than the personal pursuit of two robust egos; that is: if it actually comes to fruition. On the positive side, the regulatory authorities might see an advantage in having a new heavy-weight on the market, particularly in the media buying sector which is dominated by a single player in many countries, but the real hindrance to realizing this merger is the threat of losing the significant marketing budgets of competing global brands.
These will be interesting times ahead for Omnicom and Publicis as they engage in the triple act of convincing regulatory authorities, shareholders and their clients of the benefits of the merger: shareholders vote by raising their hand, but clients can vote with their feet.