Why Sir Martin Sorrell might be rubbing his hands with glee after the Publicis-Omnicom merger

30th July 2013

“Chapeaux off to Maurice”. On Monday morning (29 July), a bullish-sounding Sir Martin Sorrell appeared on Radio 4’s Today programme to comment on the stunning Omnicom-Publicis merger, which had been unveiled to an astonished world less than 24 hours earlier.
The coming together of the world’s second and third-largest marcomms holding companies created a $35bn behemoth (or, to quote the Financial Times’ Lex column, a “monstrosity”) which will – assuming it gets past the regulators (and for the purposes of this column, we’ll work on the assumption that it will) – leapfrog Sir Martin’s WPP to become the world’s largest advertising group, with a 40%-plus share of the global ad market.One can see the logic of the deal – it gives the new Publicis Omnicom Group (POG) real scale, and will enable it to play hardball with media owners on rates; it should also deliver $500m in cost savings; it gives Omnicom – which has not been as busy on the digital acquisition front as its new partner – a step up in the wired economy; it gives Publicis a bigger presence in PR, where Omnicom is strong; and, of course, it marks Publicis’ chief Maurice Levy’s most stunning coup ever, the crowning point of a 30-year career that has seen its fair share of news-making acquisitions. Finally – and this will mean a lot to Levy – it has allowed him to steal a march on Farm Street and his old rival.

But many commentators and ad industry insiders have already started questioning the wisdom of this deal. Leaving aside the fact that this merger may have to clear regulators in up to 45 countries, there are also issues with client conflict – Publicis, for example, has a long and important relationship with Coca-Cola, while Omnicom works extensively with PepsiCo. Omnicom has Apple, Publicis, Blackberry owner RIM. While the two actually share some big accounts – P&G, J&J, Mars and Unilever – some big clients of both agencies may well feel that it is time to look elsewhere.

Then there is the problem of personnel. Big mergers like these always lead to lay-offs, and there will also be a lot of senior management and creative staff in both groups who will be wondering where their carefully-mapped career paths will lead now; and who will wonder if they should think about pastures new.

Finally, there may be a clash of cultures. For all the official talk of a “merger of equals” it seems to many observers, that this deal has been driven by Publicis. Although it’s smaller than Omnicom, it seems to be wearing the trousers here. It’s telling that the announcement was made at Publics HQ in Paris rather than New York, where Omnicom is based (and even more tellingly, the new entity is likely to be based in the Netherlands). What Omnicom’s staff and clients will make of this is anyone’s guess – but it won’t go down well in some quarters Stateside.

Apart from the promised $500m savings via synergies, and the prospect of better margins in media, it’s actually difficult to see what value this merger brings to shareholders in the long term. And given that the merger talks were conducted in such secrecy that clients and senior staff were completely unaware of what was happening until it was announced yesterday, there may be a lot of clients, suits, creatives and planners feeling rather put out.

While the creation of POG might prompt another round of mega-consolidation (IPG, the smallest of what was until yesterday known as the “Big Four”, is looking extremely vulnerable and could be snaffled up by WPP, Denstu/Aegis or even Havas), I don’t think it will.

And this (along with a nice spike in the WPP share price following the announcement) is why Sir Martin sounded so relaxed on the radio earlier today.

My guess is that Sorrell, peeved as he might be by being overtaken by his French rival, will not panic. I don’t think he’ll swoop for IPG, or for anyone else. He will already have been working his contacts book, getting a feel for which clients and what talent he might be able to lure to his global networks like JWT, Ogilvy, Grey and Y&R over the coming months. All of a sudden, these big WPP agencies may start to look very attractive to a large number of agency people and client-side.

Although he was as much taken by surprise as the rest of us, I think the WPP chief will be looking at ways to make this merger work in his favour. This offers him the chance to grow organically and sustainably, through the acquisition of new business, rather than the (leveraged) acquisition of agencies; given the size of some of the accounts that might soon be up for grabs; and the wobbly state of the global economy, this seems to me to be an eminently sensible strategy to pursue, particularly in the short-to-medium term.

And I don’t think it will just be WPP that benefits – smaller groups like Creston and Cheil; and the larger indies, such as Weiden + Kennedy, might pick up a lot of new business and talent. And it could give the start-up scene a bit of a boost as well – it’s quite likely that some former POG employees will create their own agencies, perhaps taking talent and clients with them.

During his Radio 4 interview, Sorrell cited the Daimler-Chrysler merger as an example of a promising-looking business marriage that ended in divorce. He might also have mentioned the most disastrous merger of all, the 2000 coming together of AOL and Time-Warner. But most of all, I suspect he was thinking about his old firm Saatchi & Saatchi’s acquisition of Ted Bates (then the world’s third-biggest agency) in 1986, which prompted a damaging client exodus (for the very reasons outlined above) and the beginning of S&S’ decline.

During the secret six-month talks that led to the merger, Sorrell said, the two holding groups were codenamed “Purple” (Publicis) and “Orange” (Omnicom).

What, he asked rhetorically, do you get if you mix purple and orange? He answered his own question thus: “dark brown gloop”.

That doesn’t sound like a man who’s rattled.