Since 2001, the end of the last period of industry consolidation, the conventional wisdom has been that the major players had bought most everything worth buying. But now there's a growing sense that the stars in the holding-company constellation are once again going to be realigned.
Much of the recent acquisition speculation has focused on ad-conglomerate tweens such as Havas and Aegis Group and the man who controls them both, corporate raider Vincent Bollore. But another Frenchman might turn out to be more crucial to the next phase of consolidation: Publicis Groupe CEO Maurice Levy, who is known to be looking for acquisitions to beef up his presence in the United States.
One deal that's said to be under consideration is a bid for Interpublic Group of Cos., something Mr. Levy strenuously denies. Publicis is expected to conduct internal discussions this week about whether to attempt an acquisition of holding-company rival Interpublic, a move that would combine two of the ad industry's largest players and create a $11.4 billion leviathan with a client list topped by the world's two largest automakers and its two largest package-goods players.
There would be no greater reordering of the ad universe than a Publicis-Interpublic mash-up. Such a deal-with a potential value that could soar into the $7 billion range-would be the largest since the last major period of ad-agency consolidation ended in 2001.
The question of whether Mr. Levy will make a run at Interpublic, according to executives familiar with the situation, is expected to come up at a regular meeting of Publicis Groupe's supervisory board this week. One scenario likely to be discussed would have Publicis, the fourth-largest holding company, team up with Dentsu, the fifth-largest player and a 15% shareholder in Publicis, to finance a purchase. (Publicis' supervisory board includes Dentsu's two top executives, Chairman Yutaka Narita and President-CEO Tateo Mataki.)
Mr. Levy, reached by e-mail, dismissed the Interpublic scenario. He wrote, "The speculation regarding [Interpublic] is either coming from the imagination of a lot of creative bankers, or from the kind of people who want to intoxicate the market with false rumors." An Interpublic spokesman said the company declines to comment "on rumor and speculation."
All denials aside, one thing is certain: Mr. Levy's will to do a deal is strong. He told The Wall Street Journal in October that he's "contemplating several possible strategies in terms of acquisitions." That report immediately set off speculation that he's once again interested in Aegis, the London-based media-buying and research company Mr. Levy bid for last year, only to retreat after Mr. Bollore, Aegis' largest shareholder, raised his stake. Since then, Mr. Levy has publicly reiterated his lack of interest in Aegis.
Industry observers say it might make more sense for Publicis to pursue interactive firms such as Digitas and Aquantive or a PR giant such as Edelman Worldwide, with whom Mr. Levy has flirted in the past. Even a small but creative hotshop such as Strawberry Frog may hop into his sights. All of these have offerings that are in great demand from marketers.
A play for any of these companies, however, would be dwarfed by a purchase of Interpublic, which would be the biggest deal ever seen on Madison Avenue, surpassing the $4.7 billion WPP Group paid for Young & Rubicam in 2000. Interpublic has a market cap of $5.3 billion and enterprise value (market cap plus debt minus cash) of $6.1 billion.
Publicis, which reports its financials in euros, could take advantage of the slumping dollar. The value of the euro last came close to its highest level since the currency was introduced in 1999. The euro has risen 12% this year, making it cheaper for Publicis to go shopping in the U.S.
A merger of Interpublic and Publicis, with Dentsu remaining an independent but large shareholder in the new entity, likely would create a new No. 1 player, a goliath with about $11 billion in annual revenue and a client list that includes General Motors Corp., Toyota Motor Co., Procter & Gamble Co. and Unilever. Potential conflicts, needless to say, could abound, and a combined company could result in agency closings, restructurings or sell-offs.
Executives familiar with the Dentsu-Publicis talks say they're very preliminary and could ultimately amount to nothing. And a Paris-Tokyo axis attempt on Interpublic could set off a chain reaction, effectively putting Interpublic in play and loosing all manner of potential buyers on the company. Over the past 18 months, a variety of scenarios have been proposed, from the visionary-such as Google swooping down on Interpublic or one of its holding-company rivals-to the financial-driven and less exciting, such as a private-equity-led move by a firm such as Hellman & Friedman or a consortium.
Not surprisingly, a Publicis-Interpublic merger is one of the few potential deal scenarios left that has enough meat on its bones to work Madison Avenue types into a proper slobber. In a recent research report, Deutsche Bank analyst Patrick Kirby argued such a deal is financially feasible. He even came up a name for the combined unit: "InterPublicis."
Key to a Publicis deal will be Interpublic's willingness to be bought. Mr. Levy is said to dislike hostile takeovers and prefers to play the role of the white knight riding in to save a company in distress rather than the barbarian at the gate. Mr. Levy, one industry executive said, makes "better business love than anyone else."
Either way, 2007 could end up being the year of the deal, with all eyes on Messrs. Levy and Bollore and Interpublic, Havas and Aegis.
contributing: bradley johnson, laurel wentz, alice z. cuneo