This weekend saw one of the most exciting pieces of news coming straight out of Paris & New York, namely the leak on Saturday and subsequent announcement on Sunday that Publicis & Omnicom, respectively the 3rd and 2nd largest ad agencies, would be filing for a 50-50 merger of the two companies; however before the champagne was finished, the doubts began to surface.
For a quick analysis of the merger itself, I recommend this article in FT from Sunday. For an analysis on why this merger impacts the Tech industry, read Om Malik’s analysis in Paid Content (tl;dr All companies are tech companies, Ad Agencies rely on Google, Facebook, Yahoo, etc.).
I wanted to take a minute to stack up the reasons why this merger might not go through, though I surely hope that it does – having a world leader listed on the Euronext – as well as the NASDAQ – would be a great win for Paris as its AdTech ecosystem builds up.
If you’re making money, you’re probably pissing off a French labor union
Less than 24 hours after the rumors began to surface, the CGT, one of the largest labor unions in France, called the merger “unreasonable.” The reasons, according to CGT, are that the “mega-operation”(i.e: merger) is being done for financial reasons, and not because it is “pertinent and complimentary.” The fear, of course, is that the merger will lead to layoffs as the two companies have large amounts of redundancies. While some might say that the existence of redundant positions in two companies that are merging is a sign of creating a ‘more well-oiled machine,’ the CGT has called for the government to intervene on the deal – I’m sure the CGT has Montebourg’s number on speed-dial.
Anti-Competition: Part 1, the Government
There is a large question of whether the French or the US governments will reject the merger of these two public companies. Combined, the two companies will have more than twice the revenue of the previously #1 Ad Agency WPP, with the new entity generating 41% of the total revenue of the top 10 ad agencies; however, unlike major telecom mergers, wherein the fears are around whether consumer prices will go up as a result, the merger is expected to drop advertising prices, which have risen due to the competition between so many large players.
Anti-Competition: Part 2, the current Clients
The other issue, pointed out well on Paid Content, revolves around the fact that Omnicom and Publicis have previously served competing clients – Coca Cola & PepsiCo, AT&T & Verizon – which may prove advantageous for WPP, who now becomes the de facto competitor to the new agency. How many of these clients will flee this new giant? It’s hard to say – no one likes to work with someone who’s working with their competitor; however, with Publicis and Omnicom’s many subsidiaries, there may still be room for creating competition between the various entities.
Conclusion: “I just saw a pig fly”
— david jones (@davidjonesOYW) July 27, 2013
Ultimately, while many headlines are suggesting the merger is already done, I wouldn’t count my chickens until this giant Siamese egg has hatched. While the combined revenues sound incredible, and the possibility that the #1 Ad agency would no longer be in London but in New York & Paris (the new entity would have Co-CEOs in the two locations for the first 30 months), there are a lot of hurdles to overcome, no doubt many of which the two CEOs have already considered months ago when the initially prospect of a merger was discussed.