(News Bulletin 247) – Omnicom has decided to buy its rival Interpublic to create the world number one in advertising. An operation which should, paradoxically, benefit Publicis.

A big bang in the advertising sector. On Sunday, the Wall Street Journal reported that Omnicom, the world’s third largest player, was in advanced discussions to buy Interpublic, the number four.

The two companies then made their engagement official on Monday afternoon in a press release. Their respective boards of directors have approved the operation which will take the form of an acquisition of Interpublic by Omnicom entirely financed in shares.

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Interpublic shareholders will each receive 0.344 Omnicom shares for every Interpublic share held. Omnicom shareholders will hold 60.6% of the new group, those of Interpublic 39.4%.

Based on Friday’s Omnicom closing price ($103.42), these terms imply a buyout offer on a basis of $35.58 per Interpublic share. That is a premium of 21.6% compared to Friday’s price ($29.26) which values ​​Interpublic’s equity at $13.3 billion.

This new group will post revenues of $26.5 billion based on 2023 results. The annual synergies that would be generated by this merger are estimated at $750 million.

This merger will create the world number one in the sector in terms of revenue. “Its strength would lie in its very marked leadership in the ‘media’ market in the United States with a market share that we estimate around 40% compared to 20% for Publicis for example,” explained Oddo BHF in a note published on Monday. The two groups expect the transaction to be finalized in the second half of 2025.

The broken engagement between Omnicom and Publicis

In New York, Omnicom shares lost 2.7% in pre-opening this Monday, while Interpublic jumped 13.48%.

In Paris, Publicis shares reacted positively to the announcement, gaining 1.8% around 2:30 p.m. after gaining more than 2.5% at the start of the session. The same goes for the British WPP which gained 3.7% on the London Stock Exchange.

“First of all, there is a cross-reading on the valuations. The Wall Street Journal article mentioned a valuation for Interpublic approximately 25% higher than that of the market so this could have a positive impact on other advertising groups Even if Interpublic suffers compared to the others and logically displays a discount,” explains a financial intermediary.

This expert especially emphasizes that such a merger could benefit competitors. The advertising sector has not seen a real major attempt at rapprochement in more than a decade. In 2013, Omnicom and Publicis entered into exclusive negotiations for a merger “of equals”. But the engagement was broken off a year later.

“The real subject was the fact that in the evolution of the discussion with our friends at Omnicom (…) we disagreed on the design of the project on arrival, whereas at the start we were perfectly in agreement “agreement”, Maurice Lévy, then chairman of the board of Publicis, explained on BFM Business at the time.

“The one they wanted to apply in the end was a non-model,” he continued, referring to “a synthesis commission from a socialist party that cannot be found.” “We can simply say that the merger between equals could result in an absorption of Publicis by Omnicom,” he simplified.

Ten years later, a similar operation took place. However, the previous experience between Publicis and Omnicom “had shown that clients were not necessarily fond of this type of operation which complicates structures while on the contrary they prefer simplification” underlines the anonymous expert previously cited.

Loss of customers?

These large-scale operations “can constitute a significant distraction for the groups concerned who set up integration committees”, he continues. “This paves the way for short-term market share gains for competitors. With customers who can leave one of the groups: imagine for example that one of them has Coke as a customer and the other Pepsi “, he concluded.

This observation is shared by Oddo BHF in its note published this Monday. “This operation seems positive to us for the entire advertising agency market (and possibly even more so for unaffected competitors),” writes the broker.

“This operation will allow an increased concentration of market shares, particularly in the ‘media’ field in the United States where the effects of scale are the most important. The new group would be largely the leader with a market share of order of 40% on this market but above all the oligopolistic dimension of the market would be reinforced with more than 5 major global players (compared to 6)”, explains Oddo BHF initially.

“This reduction in competition would naturally be positive for this industry with an ability to increase prices and less competition for recruitment (“talent”),” continues the broker.

So much for the aspect linked to the consolidation of the sector. But this is not the only dimension that must be taken into account. Oddo BHF underlines that the new group created by the merger between Omnicom and Interpublic should “manage a risk of loss of clients and talents which could benefit its competitors, and particularly Publicis which is the most exposed group in the United States” . This while Omnicom “has never demonstrated its ability to manage large operations”, notes the broker in passing.