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What Sorrell, Jones, Nadal Say About Publicis-Omnicom Merger

Plus: What's the Future for Interpublic?

By Published on .

During a conference call with journalists on Sunday morning, Publicis Groupe CEO Maurice Levy was respectful to his longtime rival, Martin Sorrell, the CEO of WPP -- which is now the No. 2 holding company. That sentiment was returned when Mr. Sorrell, following the merger announcement of Omnicom and Publicis, complimented Mr. Levy's ability to propose the deal talks and successfully see them through.

"It's an extremely bold, brave and surprising move," said Mr. Sorrell. "It's a nil-premium merger -- effectively a takeover of Publicis by Omnicom [without exchange of money] -- and Maurice has to be congratulated for pulling off such a deal."

Martin Sorrell
Martin Sorrell

WPP

Still, Mr. Sorrell noted there are flaws in the deal's structure. "It's off-strategy," he said, noting that Publicis is aligning with a traditional company that's barely diversified in digital services. "Time will tell if the culture will click and whether it will be a good thing for clients," said Mr. Sorrell. He also questioned the management structure. "Co-CEOs is not an easy structure, as history proves.

Mr. Sorrell brushed off the idea that Publicis Omnicom Group puts pressure on him to be more acquisitive in order to compete with the scale created by this new giant ad player.

"One thing's for sure, and that is there will be lots of upheaval and uncertainty around the boardroom tables of the other large players," said Andy Collins, senior partner with M&A consultant Results International. "Will Sir Martin have to do another deal to regain his position as global leader by doing a deal with IPG?"

"There's no pressure," said Mr. Sorrell. "In Europe we're still the same size [as Publicis Omnicom Group], in Asia we're bigger, in Latin America we're slightly smaller, in Africa we're bigger and in America they have an antitrust issue." He added: "An equilibrium may be being established in the industry, which may create more opportunities for WPP organically."

In other words, he's suggesting that rather than grow through acquisition, WPP could benefit from any client conflict fallout from the Publicis-Omnicom deal over the next year -- and Mr. Sorrell may be out there sooner than later courting those clients.

David Jones
David Jones

Havas

David Jones, global CEO of Havas, said the deal doesn't appear to be good for clients or talent of either firm and he said being bigger won't necessarily help Publicis or Omnicom develop digital prowess and deliver client solutions quickly -- both abilities that are increasingly important.

"Speed and agility is much more important in today's world than scale -- that's why it's such an interesting move," said Mr. Jones in an email. "As you know, Vincent Bolloré initially thought he had to buy Aegis for scale reasons then quickly realized he didn't. In fact, until it was acquired, Aegis was the fastest-growing of the companies despite being by far the smallest, and in the creative industries the much smaller players like Wieden, BBH or Droga5are among the best."

Mr. Bollore is Havas' chairman and largest shareholder. Dentsu Inc. acquired Aegis Group in March 2013. Publicis in 2012 bought the remaining 51% stake in Bartle Bogle Hegarty, giving Publicis full ownership of BBH.

Mr. Jones, too, is optimistic that he can benefit, luring both marketers and top-tier talent who may be less than pleased with the Publicis-Omnicom deal. "We'll certainly be looking at client and talent fallout," said Mr. Jones. He added that Havas will not be pressured into any mergers with competitors.

"Havas can only be a target if the Group Bollore wants it to be, and they have been pretty clear on their intentions," he said. "It does mean, however, that IPG will be subject to a lot of speculation and interest. MDC, too, maybe."

Miles Nadal
Miles Nadal

MDC Partners

Miles Nadal, CEO of much-smaller holding company MDC Partners -- parent of agencies such as CP&B, 72andSunny, Anomaly and KBS+ -- was wholly upbeat about the the merger, presumably because it makes his very U.S.-focused and not terribly diversified portfolio of agencies look like a more attractive acquisition target.

The creation of Publicis Omnicom Group is "a brilliant move for them strategically. It settles each one's issues with a complementary strategic partner," said Mr. Nadal. "It won't be without any fallout, but it ultimately will be a very successful move for them."

As for MDC, "it's a huge win," he said, citing new-business opportunities due to both client conflicts and client concerns that this mega merger will distract agencies from producing great work.

"It extends the lifespan and runway we have," he said. "MDC has a longer runway for oversize growth. The opportunity to continue to build scale and increase profitability is better than ever."

And, he added, "We will have far less competition for M&A ... especially as [the industry] focuses on the consolidation of this mega-merger."

Interpublic

Analysts are now watching Interpublic closely. "With news of Omnicom and Publicis merging, Interpublic will immediately be considered to be in play by investors," said Pivotal Research analyst Brian Wieser, who revised his year-end target stock price for IPG to $21 from $16. "Our revised price target is determined by maintaining our business profile estimates, but by applying the costs of capital embedded in our price target for the most likely acquirer, WPP."

But he also suggested Havas could be an acquirer, given the Bollore family's commitment to the industry, as well as Dentsu, if it wants to be viable outside Japan (its dominance there will remain even after Publicis and Omnicom merge). "It will need a stronger presence in the U.S. and Europe," he said. "Meanwhile, WPP ... will undoubtedly reconsider the limits to scale it may previously have assumed. All of this is to say that we now have as many as three potential acquirers for IPG, which offers the best solution for each of the companies who might want to buy it."

Neither Interpublic nor Dentsu returned a request for comment by press time.

"There are two likely scenarios," Results International's Mr. Collins said about Interpublic. "One: It could be seen as a possible takeover target. Two: it remains independent and picks up some of the major client accounts that are likely to fall out from this huge deal. Either would be good for IPG shareholders."

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