A new company for a new world – Omnicom and Publicis proposed merger

Potentially worth $35bn in the stock market, the proposed merger between Omnicom and Publicis would create a marketing and advertising services giant, immediately overtaking WPP to become the largest firm in the world by some distance in this sector.

As far as I can tell, this is being driven by what we might define as supply and value chain considerations, rather than any real benefits for the customers of the two firms. Although in their presentation to investors, they listed some “compelling benefits” for their clients, including improving depth and scope of services to help clients build brands and grow their businesses, and creating a portfolio of best-in-class advertising, digital, media and other specialised marketing services. They seem fairly weak and obvious benefits that could be used to butter up any clients being involved in large mergers, which makes me question how much this merger really will benefit clients. I suppose other benefits might be passed back to them in time, but if I were a client my immediate view would be somewhat suspicious.

These are huge firms already, but commentators believe that the combined firm will have greater leverage when buying advertising media - TV time, press and new options. Google, Facebook and others are becoming more serious options, and of course these are huge firms who may hold a strong position in terms of power in the supply chain. The new mega-firm may be able to face off against these providers better.

But you have to wonder whether that power in the supply chain might also be applied in terms of achieving more profitability from clients. Does that unspoken aim sit behind this move? On the other hand, marketing services is still a pretty fragmented industry, and it is a business where the barriers to entry are very low. Like consulting, anyone can start up an agency from their kitchen table. That means it may be hard for the merged firm to retain all their clients, and already, WPP (the current number one) are licking their lips at the prospect of picking up some juicy clients.

However the feasible choice for big global clients and brands is ever shrinking if this does go ahead. There will also be some interesting conflicts, such as rivals Coke and Pepsi working under the same roof, as well as Apple and Samsung. They’ve made it very clear that there will be strict firewalls for client confidentiality, but will these clients really trust the Chinese Walls? The larger companies such as Pepsi and Coke seem to be staying silent for the time being, but hopefully we’ll hear some of their views on the proposed merger soon.

There's a strong suspicion that competition authorities will want to take a look at this. The merger has to be cleared by regulators in 45 countries, which may prove difficult. And there's no guarantee that even if it does go ahead, it will actually generate either shareholder or client value. Maybe I'm just a natural pessimist, but I wouldn’t hold your breath on either front.

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