Publicis highlights global reach in $3bn B|Com3 merger

LONDON - Publicis Groupe has unveiled details of its $3bn (£2.1bn) merger with B|Com3, a deal that will create the world's fourth-largest advertising network and see the new entity sign an agreement with Japanese ad powerhouse Dentsu.

The new group will have revenues of €4.6bn (£2.8bn) and 38,000 employees. It will retain the Publicis name and management structure, with Roger Haupt, CEO of B|Com3, taking on the chief operating officer role at Publicis.

The merger will give the group $4bn in combined revenues, making it the fourth-largest ad group in the world, with $36.3bn in media-buying billings, which will put it into second place behind the Interpublic Group of Companies' media operations.

Dentsu, which currently owns 22% of B|Com3, will take a 15% stake in Publicis, as well as signing a global partnership, giving it what it claims is unprecedented international coverage, especially in the normally difficult Japanese market. It will also pay an additional $500m to secure the stake.

At a news conference this morning, Maurice Levy, chairman and CEO of the French group, stressed global coverage as the real selling point of the deal, which the group hopes will be completed by June 18. He stressed the importance of the national backgrounds of each of the parties involved -- B|Com3 has its roots in the US and a strong presence in North America; Publicis is proud of its French roots and is strong in Europe; and Dentsu has been the dominant force in Japanese advertising for more than a century.

However, how will the realities of this partnership shape up? When asked for concrete examples of the benefits to clients, Levy cited access to better media-buying conditions for clients in Japan, where 25% of adspend goes through Dentsu. The deal will see Dentsu's Japanese clients have access to Publicis agencies in Europe and the US, and the opposite will apply for Publicis' clients in Asia.

While Dentsu was keen to push the benefits -- giving it a chance to expand its revenue base, which is currently 95% dependent on income from its Japanese operations -- the reality is, of course, that Dentsu is notorious for moving in mysterious ways. While it is now a listed company, it has only had a few months to get used to its public status, and how much cooperation will be achieved between agencies is questionable.

On the issue of client conflict, Levy and Haupt presented a relaxed front. Citing the short notice they had to warn clients of the deal, Haupt said that the reaction from clients was "unanimous and enthusiastic", while Levy said that Publicis would be able to manage conflicting portfolios. The top 10 clients of the merged entity will include General Motors, Fiat, Diageo and McDonald's.

With other large mergers, the fallout has taken some time to emerge in terms of client departures. However, it seems likely that clients will at least see how the partnership with Dentsu pans out before making any decisions.

There is also the issue of consolidation between the two groups. Publicis will own the creative agencies Saatchi & Saatchi, Publicis, WCRS, Fallon Worldwide, Leo Burnett and D'Arcy, as well as a 49% stake in Bartle Bogle Hegarty. Levy said that management will look at each entity "under a microscope", and see what needs strengthening and where it is best to leave well alone.

He was clear that there were unlikely to be large-scale redundancies, instead saying that any scaling back in staff numbers was more likely to come through natural attrition.

The timing is also questionable, coming in the middle of what is widely acknowledged as the worst advertising recession in decades. B|Com3 had been planning an IPO last year, but called it off due to adverse market conditions.

Both companies have only just completed large mergers, with Publicis' acquisition of Saatchi & Saatchi, and the creation of B|Com3 from the merger of Leo Burnett Worldwide and the MacManus Group, both taking place in 2000.

However, Haupt argues that B|Com3 needs to expand its offering of services, and that is not a time-sensitive issue.

The merger between Publicis and B|Com3 has much to recommend it, as does the agreement with Dentsu. There is also the question of Cordiant Communications, which was long seen as a potential partner for Publicis. While smaller than B|Com3, it already has existing partnerships with Publicis through the Zenith Optimedia Group of which the UK company owns 25%.

But, as with any such deal, there are pitfalls to be avoided -- and no doubt clients and the market will be keeping a sharp eye on the next few months' proceedings.

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