Here's The Big Downside To The Publicis-Omnicom Merger

The first "Publicis Omnicom Groupe" press conference ended today amid applause and smiles at the news that the two ad agency holding companies will combine to become the world's largest ad network, with $23 billion in revenues.

But applause for what, exactly?

The merger will come with some significant downsides. Here are a few of them:

1. There will be layoffs. The companies said in their press release that they expect to get $500 million in "efficiences." That means job cuts. 60-70% of holding company operating costs are salaries. So $300 million of those efficiencies are likely to be duplicate salaries that can be cut. If you assume that the fully loaded cost of an employee is about $200,000 per year (including benefits), then that could mean up to 1,500 jobs lost. Most of those jobs will be in administrative and back-room positions. Wren said "there's no planned job cuts," but believe that when you see it.

2. Shareholders get chump change from the deal. Normally when there's a merger between two publicly traded companies, the acquired company's shareholders get their stock bought out at a premium, thus rewarding them for putting money into the company. Not this time. Because it's a merger not a takeover, neither stock will get a premium.  The deal is actually designed to prevent that from happening. Omnicom holders will get a $2 dividend. Publicis holders will get 1 euro.

3. Omnicom CEO John Wren will get richer. Already one of advertising's richest men, the deal will likely trigger a change in control clause that will net Wren upwards of $4.3 million. It's not clear what will happen to the OMC shares he currently owns — more than 1 million of them, worth about $70 million. (Levy gets his full deferred compensation in the event of a new majority shareholder. That payment was already agreed before the deal, due to Levy's impending retirement).

4. Clients will leave these two networks. Both Omnicom CEO John Wren and Publicis CEO Maurice Levy gave little detail on how many client conflicts the combined company now has. Wren said there were about $6.5 billion in overlapping revenue on shared clients. He added that he did not believe the conflicts — in which the company finds itself serving two rival clients — would result in material losses. But tell that to Coca-Cola, which is now required to tell its marketing secrets to Publicis' Leo Burnett, all the while knowing that Pepsi is listening to advice from Omnicom's TBWA. These two agencies are now a mere phonecall apart. Maybe their two soda giants will live with the conflict. Clients have become increasingly tolerant of them over the years. But not all will. S.C. Johnson, for instance, is known to be rabidly anti-conflict — so that account could well bounce out of BBDO and head toward WPP's Ogilvy, the other agency on the business.

5. There will be an effective duopoly in advertising. Although there are several other agency holding companies to choose from, the lion's share of the business will now be controlled by just two companies, Publicis Omnicom and WPP. Craig Le Grice, the former digital lead at WPP and now chief innovation officer at Blue Rubicon, tells me, "How much competition does this create? In markets like the U.S., specifically, how much trust can there be with such a duopoly?  I am unsure that major clients like Procter & Gamble (etc) want to have to choose between just two holding companies for their billion dollar annual spends. Even if they do, the lack of competition will reduce the need to genuinely create stand out work — which is a blow for strategy and creative."

So there it is. The top named executives in both companies will likely get bonuses triggered by change-in-control clauses. Shareholders get very little. Clients get less choice. And employees get to update their resumes.

Source: www.businessinsider.com

Publicis Omnicom: An effectiveness 'heavyweight'

The merger of Publicis and Omnicom would create a dominant force in the world's effectiveness competitions, judging by analysis of this year's Effie Effectiveness Index.

The Index (www.effieindex.com), which is produced by Effie Worldwide and Warc, tracks performance by agency networks and their holding companies in Effie competitions around the world. It awards points for finalist and winning entries in these competitions.

The 2013 Index, released in June, showed WPP as the 'most effective holding group', with 669 Effie awards or finalists and a points total of 2539.

Omnicom and Publicis came in second and third, respectively. A combined Publicis and Omnicom, however, would have dwarfed WPP with 1037 Effie awards and finalists, and a points total of 3929.

The merged company would have led the field in every geographic region. Omnicom was already the Index's leading holding group in North America and Latin America. In Asia-Pacific, Europe, and Middle East/Africa, WPP topped the 2013 rankings.

In terms of individual networks, Omnicom houses four of the global top 10 in the 2013 rankings: BBDO Worldwide (which was second only to WPP's Ogilvy & Mather); DDB Worldwide, OMD and TBWA Worldwide. Publicis is home to just two of the top 10: Leo Burnett Worldwide and Publicis Worldwide.

One of the major questions around the deal will be unpicking potential client conflicts. Omnicom's high-scoring work in the 2013 Effie Index rankings includes campaigns for PepsiCo, McDonald's, Johnson & Johnson and Volkswagen. Publicis agencies have scored highly with campaigns for both PepsiCo and Coca-Cola, as well as Procter & Gamble and Toyota.

The proposed deal, announced on Sunday, was presented as a merger of equals which, if approved, would give the combined entity the required scale and investment to deal with major changes in the advertising and media landscape. The deal is expected to release $500 million in cost savings - though exactly how those would be made remains unclear.

Omnicom chief executive John Wren, who will become co-CEO of the new group, told the Financial Times that "lines have blurred completely", with new competitors coming in every day. He added that the pace of change is going to get faster. 

Predicting that the merger would create more powerful solutions for clients, Wren explained that both groups have experience of ad-buying and technology partnerships with digital giants such as Google. Publicis's strategy in recent years has been to buy digital agencies, including LBi and Razorfish, whereas Omnicom has focused on growing organically in this area. 

Martin Sorrell, chief executive of WPP, described the move as "extremely bold, brave and surprising" and predicted that further consolidation of the industry is inevitable. Speculation has already begun as to whether WPP will seek a similar mega-deal with one of the remaining smaller holding companies to make up ground. But several industry insiders remain sceptical.

David Jones, chief executive of Havas, said clients want agencies to be more "agile" and "not bigger and more bureaucratic and more complex", while Bert Foer, head of American Antitrust Institute, predicted that clients of the two companies would object to the deal.

Another major question will be whether the combined organisation will be able to use its scale to deliver greater savings for clients in media buying.

Dominic Proctor, global president of GroupM, WPP's media investment unit, told Campaign that getting scale in media investment is critical for clients. But he argued that both Publicis and Omnicom had so far struggled to join up their existing media-trading operations, adding: "It only works if it all joins up."

Marketing Match

Publicis

Publicis Groupe was founded in 1926 by Marcel Bleustein-Blanchet in Paris after he left his job as a salesman in the family furniture shop. It now employs 60,000 people and controls some of the world's biggest advertising budgets through media buying agencies including ZenithOptimedia and Starcom MediaVest. Coca-Cola is amongst its most prized clients, with Publicis advised on its high-profile sponsorship of American Idol and the 2012 Olympics.

Its family of agencies includes Saatchi & Saatchi, Bartle Bogle Hegarty and Leo Burnett, which created the "We All Make the Games" campaign for McDonald's during the Olympics. In the digital arena, it owns Razorfish, which acts for Samsung and has helped push digital revenues to 33% of group income. Clients include Nestle, Walt Disney and Mars. In a sign that rival firms do not always object to sharing advertising groups, Mercedes-Benz, Nissan, Toyota and Volkswagen are among the car brands it worked for last year.

Omnicom

John Wren, who earned $14.8m (£9.6m) in 2012, was among those who helped found Omnicom in 1986. The group depends on the US for 52% of its revenues, but its advertising agencies are global. The stable includes BBDO, which employs 15,000 people in 79 countries, and DDB Worldwide, which looks after Band-Aid and Neutrogena owner Johnson & Johnson, and the oil major ExxonMobil. It was DDB's Munich subsidiary, Heye & Partner, that devised the "I'm Lovin' It" slogan for McDonald's.

Omnicom's TBWA\Worldwide agency counts Apple, Absolut vodka, Sony PlayStation, Michelin, Mars and Visa as clients, and employs 11,000 people in 77 countries. The company has a decades-old relationship with PepsiCo, for whom it created the slogan "The Choice of a New Generation", and for which it negotiated sponsorship of X-Factor programmein the US and last year's Super Bowl halftime show with Beyoncé. As well as McDonald's, Omnicom and Publicis share household goods firm Procter & Gamble, and cosmetics group L'Oreal as clients.