PARIS -- Omnicom Group Inc. and Publicis Groupe SA say they are combining in a "merger of equals" that would create the world's largest advertising firm, one worth more than $35 billion.
The combined company would be called Publicis Omnicom Group and be jointly led by Omnicom CEO John Wren and Publicis CEO Maurice Levy as co-chief executives. The move is designed to bolster the companies' focus on growing Asian and Latin American markets such as China and Brazil, where they each have ramped up operations to counter lackluster growth in weak European markets.
Omnicom Group Inc., based in New York, owns BBDO Worldwide, DDB Worldwide Communications Group and TBWA Worldwide, among other agencies. Paris-based Publicis Groupe SA runs its namesake agency as well as Leo Burnett Worldwide, Saatchi & Saatchi and DigitasLBi. Their merger creates a company with combined annual revenue of about $23 billion, leapfrogging them over current London-based industry leader WPP PLC.
Although a combined firm would allow for more pricing power in general, the decrease in competition could present regulatory hurdles in the United States and Europe. Client conflicts also could be an issue, as rivals such as Coca-Cola Co., PepsiCo, McDonald's, Yum Brands' Taco Bell, Johnson & Johnson and Procter & Gamble now find themselves under the same umbrella.
Rich Tullo, an analyst at Albert Fried & Co. in New York, predicted pushback from regulators in both the United States and France. The United States could be wary of one company controlling such a large portion of the market, he said, while in France, authorities might not take warmly to any Americanization of a company that is a bright spot in the bruised French economy.
Tullo also questioned whether the combined company could live up to promises like the $500 million in cost savings touted with the announcement, given Europe's shaky financial condition. "That sounds like financial alchemy, if you ask me," he said.
Omnicom, which also owns public relations firms such as Fleishman-Hillard, Porter Novelli and Ketchum, reported 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.
Founded in 1986, 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.
Omnicom would 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.
Analysts said the deal also represents even more consolidation in an industry that is already dominated by just a few players, a fact that might not sit well with U.S. regulators.
If the Omnicom-Publicis combination goes through, the combined company would account for nearly 40 percent of the U.S. ad industry, twice as much as the nearest competitor, WPP, according to Brian Wieser, an analyst at Pivotal Research Group in New York.
The combination could have a domino effect on the industry, spurring marriages between other ad giants who might fear they can't compete otherwise, said Michael Corty, an analyst at Chicago-based Morningstar. "Within the ad agency industry, this is potentially an earthquake deal."