The domestic ad market, already dominated by foreign agencies is in for a major shakeup with the world’s No 2 and No 3 agreeing to merger to create a giant creative power house with a market value of $35 billion. 

 

Yes, the Paris-based Publicis Groupe and the New York-based Omnicom Group Inc have agreed to merge in an all-stock deal to create the world's largest advertising company, toppling market leader the London-based WPP led by Martin Sorrell.

 

Post-merger, the shareholders of both the companies will hold 50 per cent each in the new company– Publicis Omnicom Group, the companies said in a joint statement on Sunday. Publicis chief executive Maurice Levy and Omnicom chief John Wren will become co-CEOs. The companies, which together had $23 billion in revenues in 2012, will have a combined market value of $35 billion.

 

While Publicis is the third-largest advertising firm today, Omnicom is ranked second.  Omnicom's networks include BBDO Worldwide, TBWA Worldwide and DDB Worldwide Communications Group. Publicis owns networks Publicis Worldwide, Leo Burnett Worldwide and DigitasLBi—and all these are present in the country.

 

The alliance will bring agencies, including Omnicom's BBDO Worldwide and Publicis' Leo Burnett and Saatchi & Saatchi, under one roof, extending their presence in every major market. The transaction will also give the owners more clout to negotiate for their clients better ad rates for media placements on television, the internet and in print, at a time when the global advertising industry is showing signs of a recovery. The transaction is the biggest in the ad world. Last July, Japan's Dentsu Inc had agreed to take over Aegis Group for about $4.9 billion.

 

Publicis, Omnicom and London-based WPP, led by Martin Sorrell, have grown through consolidation over the decades as they vie with each other for accounts. Ad spending across the globe will probably rise 5.1 per cent next year, according to ZenithOptimedia, a researcher that's part of Publicis. That would be an acceleration from 3.5 per cent projected for 2013. The growth rate might reach 5.8 per cent in 2015, ZenithOptimedia said.

 

Publicis, the third-largest advertising firm, brings a large portfolio of digital assets including Digitas, LBi International and Razorfish, as well as agencies in emerging markets, while the strength of Omnicom, ranked second, lies in its hefty US business.

 

The proposed combination will probably attract regulatory scrutiny in Europe and the US, given the companies' overlap and potential market share. Taken together, they spent $3.34 billion in media placements for clients last year, according to data compiled by Advertising Age. That would have accounted for 41 per cent of total spending by the top 10 media agencies in the world. WPP, by contrast, made up 32 per cent at $2.6 billion.

 

Publicis chief Levy, 71, has spurred growth by acquiring digital advertisers, as well as companies in emerging markets like China. Levy assumed the CEO role in 1975 from founder Marcel Bleustein-Blanchet, who took Publicis public in 1970. Levy has discussed stepping down in recent years, saying in April after presenting a five-year plan that he was pushing for it. The supervisory board "doesn't feel the same kind of urgency that I do," Levy said.

 

Wren, 61, helped found Omnicom in 1986. It is active in over 100 countries and generated more than $14 billion in revenue last year through ad outlets, including BBDO. Holding companies like Omnicom and Publicis create networks of agencies and PR firms within the larger group. They're designed to work independently from one another so that competing clients are placed in separate networks to avoid conflict.

 

Omnicom's networks include BBDO Worldwide, TBWA Worldwide and DDB Worldwide Communications Group. Publicis owns networks Publicis Worldwide, Leo Burnett Worldwide and DigitasLBi.  "It's a deal that makes two people happy and 130,000 and a whole bunch of clients destabilised and concerned," said David Jones, CEO of rival Havas SA. "Clients today want us to be faster, more agile, more nimble and more entrepreneurial – not bigger and more bureaucratic and more complex."