Ad Firm Merger

 

New York-based ad firm Omnicom and Paris-based ad firm Publicis merged on Sunday, creating the largest advertising firm with $23 billion in combined revenue. The merger might create complications since it will bring together rival clients, such as Coca-Cola and Pepsi, Procter & Gamble and Johnson & Johnson, and AT&T and Verizon. Joining us on Chicago Tonight at 7:00 pm with analysis are Brigid Sweeney from Crain's Chicago Business, Robert Channick from the Chicago Tribune, and Sandra Guy, business reporter for the Chicago Sun-Times.

We spoke with Sweeney and Guy about the merger.

How does the merger affect the four Chicago subsidiaries? Will this result in job cuts in Chicago?

Brigid Sweeney: This merger means good things. It means more jobs for companies like Starcom, which is good for Chicago, but from the general agency perspective, it’s really too soon to tell. Some are concerned about client conflicts. Ad firms generally try to make their clients feel like everything is OK, that conflicting clients are not a big issue. I say the bigger issue is for Wall Street rather than the day-to-day operations. It will take nine months for everything to plan out and there might be changes; no major clients will lose or win from this.

Sandra Guy: My take on this is that there is a lot of uncertainty. There will obviously be changes at the top of any 50-50 merger. The question is: who is running the show? Will things change in the day-to-day reporting or assignments? The other belief is that these shops are so independently run that they might not change for a while. The main goal is to meet budget goals.

Why did the two companies merge?

BS: It is an arms race as the digital world unfolds. Bigger is sometimes better since you can negotiate harder for your clients, and you leave a bigger footprint. I believe that the idea hatched at the big Davos conference, where a lot of companies met. Jon Wren and Maurice Levy were chitchatting and then negotiations became more serious. That’s how it got started. Also the size of the two companies gives them more options to serve their clients and the sheer scope sets them apart.

SG: There are a variety of reasons. They say becoming the biggest ad agency has a lot of clout. Some see this as a play to Wall Street, or they are saving money by being more efficient and cutting costs. Others see this as a way to compete against Google and Facebook who are coming up with different ways of marketing. Being bigger can also help them expand into faster growing markets, like China and Brazil.

When the two companies merge, they are also bringing together competing clients such as Coca Cola and Pepsi, and Verizon and AT&T. How common is this?

BS: If you look at generations of mergers, the first round was in the late ‘80s and ‘90s, when holding companies were created, that was the first time that led to client conflicts. But they have never been on this scale. This is a whole new world in terms of equal mergers on a huge scale. It is likely WPP might merge with Havas. Everyone else has to compete and match that arms race. This kind of merger is not common. This could be a new round of consolidations, and in the next three years we might have two to three conglomerates.

What challenges does the new company face?

BS: It is a huge company with, 130,000 employees, $23 billion in revenue, and $35 billion in market capitalizations. It is so huge that it will take six months to get regulatory approval. Once approved, it will take nine more months to implement the changes. And they want to reduce inefficacies which will lead to job cuts.

SG: They will face competition from lots of companies that can do things quickly, and smaller companies who are based on big data and have access to data mining. Also, clients might not like that they are marketing stuff for their rivals.

Will having two co-CEOs be a problem with creative visions?

BS: It will not be a huge problem; Jon Wren and Maurice Levy have had a strong relationship in the past and feel confident working together. But even if these two work well together, it doesn’t mean that lower management people won’t wonder who is in power and how teams will be formed; and if the Chicago office will have to report to offices in New York or Paris. For clients, this will be unsettling.

Will the new merged company thrive?

SG: Yes. I don’t think anything with that big of a business could not. They are an obvious powerhouse that has to continue adapting to social media and the digital world.

Any last words?

BS: There will be room for growth on the media and buy side. It is hard to say if it will be a net loss or gain. Chicago is a major hub for media buying operations.

SG: There will be initial layoffs at the top level, in Paris and New York headquarters, and could trickle down, but I don’t know specifically.

Interviews have been condensed and edited.