Ad Holding Companies on Brink of New Order

WPP Poised to Overtake Omnicom by Year's End; Interpublic Could Fall to 4th

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LOS ANGELES ( -- Imagine a new world order in advertising: WPP on top ahead of Omnicom, and Interpublic on the bottom, bested for the third spot by French arriviste Publicis.
The world of advertising holding companies appears to be on the verge of tectonic shifts.
The world of advertising holding companies appears to be on the verge of tectonic shifts.

That could be reality before the end of the year.

WPP creeping up
Of course, WPP has been creeping closer to the top spot for a while. After WPP struck its deal to buy Grey Global two years ago, Ad Age said: "WPP conceivably could take the top spot from Omnicom Group if the dollar weakens." And this year's first-half figures maintained the revenue ranking in place since 2003: Omnicom, WPP Group, Interpublic Group of Cos., Publicis Groupe.

But those same first-half revenues suggest we could be close to crowning a new king. Omnicom reeled in revenue of $5.4 billion, just ahead of WPP's $5.1 billion. Interpublic took in $2.9 billion vs. $2.6 billion for Publicis. And if the dollar continues to weaken against the pound and euro, it looks inevitable the longtime order will be shaken up.

Stock-market capitalization
In stock-market capitalization-shares outstanding multiplied by price-WPP scores first at $15.4 billion, just above Omnicom. WPP also is tops in enterprise value, a company's real-time price tag: $17.9 billion for WPP vs. $17.6 billion for Omnicom.

Both the revenues and market caps also show the Big Four clearly bifurcating into the Big Two and the Other Two. Market cap for Publicis is $7.8 billion. Interpublic, despite a stock rebound from multiyear lows, has a market cap of just $4.1 billion.

Omnicom and WPP declined to comment for this story. A Publicis spokeswoman said in an e-mail: "We also see the fact that the gap is decreasing" between Publicis and Interpublic. "So maybe one day we can arrive in third place."

Struggling Interpublic
Interpublic, after struggling with accounting and operating troubles the past four years, "can [now] turn our full attention to achieving competitive organic revenue performance and improving margins," the company said in a statement. "We have begun to see growth in the underlying business during the first half of this year."

Currency fluctuations play a key role in determining who's on first in revenue or market cap. A weak dollar boosts dollar-denominated comparisons for the U.K.'s WPP and France's Publicis vs. their U.S. rivals.

WPP, for example, said currency changes boosted its reported first-half revenue 3.4%. Omnicom said currency rates cut its first-half revenue growth 1.2%, a $61 million hit.

Greenbacks and pounds
The pound last week was worth $1.90; WPP's market cap translates to a higher dollar total when the dollar falls. A weak greenback hurts revenue comparisons in one respect: WPP gets less than 40% of its revenue from the U.S., and those dollars are worth less when WPP converts them to pounds on financial statements. But a majority of its business is outside the U.S., and a weak dollar makes revenue appear bigger when, for comparative purposes, the income statement's pounds are translated to dollars.

Publicis gets similar benefits from the strong euro. Like WPP, Publicis generates a majority of its revenue outside North America.

Long, hard fall
Interpublic in 2000 (based on its restated figures) was the biggest ad holding company and had a larger market cap than Omnicom as recently as 2002. In recent years its revenue has been held down by factors including weak organic growth and changes in how it manages media-buying rebates. Rivals have outperformed Interpublic in organic revenue (growth factoring out acquisitions and currency shifts), compounding its troubles.

Interpublic's goal is to reach "competitive" organic growth by 2008, but Publicis' growth could drop Interpublic to fourth in revenue, a stunning place for advertising's original holding company.

Given how close the revenue ranking is now, even small acquisitions going forward could affect the industry scorecard.
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