Publicis and Omnicom’s £23bn merger knocks Sorrell’s WPP off global summit

Advertising was shaken to its foundations on Sunday as a $35bn (£22.7bn) mega-merger between two industry rivals toppled Sir Martin Sorrell’s WPP as the world’s biggest firm.

The “merger of equals” between American company Omnicom and France’s Publicis – the second and third biggest companies respectively – is the sector’s biggest ever deal and is likely to spark more consolidation.

The combination, bringing together famous agencies such as BBDO Worldwide and Publicis’s Leo Burnett and Saatchi & Saatchi under one roof, creates a company with 130,000 staff and annual revenues of around $23bn, dwarfing WPP. The two companies plan $500m in cost savings.

But the deal is likely to face scrutiny from competition authorities as advertising’s big four – the other major player is US company IPG – becomes a big three. The two companies’ bolstered blue-chip client roster also raises potential issues as bitter rivals such as Coca-Cola and Pepsi find themselves under the same umbrella. Brian Weiser of Pivotal Research said WPP could be forced to make a move for IPG, France’s Havas or Japan’s Dentsu, adding: “What would have been unthinkable previously would now make sense.”

The new company, to be known as Publicis Omnicom, will be led jointly by Omnicom chief executive John Wren and Publicis chief Maurice Levy for the next 30 months, when Mr Levy becomes non-executive chairman.

Sir Martin, who refused to comment on whether WPP would seek its own major acquisition, called the deal an “extremely bold, brave and surprising move” . He added: “It’s a great deal for Publicis, being a nil-premium merger, and Maurice is to be congratulated. It does result in lower fast-growth market and lower digital proportions.

“Time will tell if the cultures will click and whether clients and talent benefit – and how $500m of synergies will be generated without job cuts. Further consolidation in our industry was inevitable as we have said on many occasions. An equilibrium may be starting to be established, which will generate further significant opportunities for WPP organically.”

The move is designed to bolster the companies’ focus on growing Asian and Latin American markets such as China and Brazil, where both firms have been looking for growth to counter weak European markets. Omnicom generates just over half of its sales from US clients, and about one-quarter from European and British markets combined, but will benefit from Publicis’ strategic shift in the last few years toward digital operations. The French company – which has beefed up its digital marketing profile with the acquisitions of agencies including Digitas and Razorfish - has set a target of generating 75 per cent of its revenue in digital and fast-growing countries by 2018.

Mr Levy, 71, said the merger had been driven by the “dramatic changes” in the communication and marketing landscape in recent years including the rise of new media and the “profound changes in consumer behaviour. He said: “John and I have conceived this merger to benefit our clients by bringing together the most comprehensive offering of analogue and digital services.”

But David Jones, the head of rival agency Havas, questioned the logic of a large merger which risked distracting staff from clients. He said: “Clients today want us to be faster, more agile, more nimble and more entrepreneurial, not bigger and more bureaucratic and more complex.”

The power players: jostling for position

Maurice Levy, Publicis

Key brands: Saatchi & Saatchi, Leo Burnett

Major clients: John Lewis, Sainsbury’s, BT Market cap: €12.5bn (£10.8bn)

Annual sales: €6.6bn (£5.7bn)

John Wren, Omnicom

Key brands: Abbott Mead Vickers BBDO

Major clients: EE, British Airways, Google Market cap: $16.8bn (£10.9bn)

Annual sales: $14.2bn (£9.2bn)

Sir Martin Sorrell, WPP

Key brands: Ogilvy & Mather, JWT

Major clients: BSkyB, Unilever, Vodafone, Barclays

Market cap: £15.6bn

Annual sales: £10.4bn

Snapshot blue-chip brands of the big three

The two “mad men” who will jointly lead the newly-formed combination of the world’s second and third biggest advertising firms are an intriguing contrast of styles.

Silver-haired Publicis boss Michael Levy is a suave veteran of more than 40 years at the company and a workaholic whose wife once got so fed up with him using his BlackBerry on holiday that she threw it in the swimming pool. His BlackBerry still worked after the soaking.

Omnicom chief executive John Wren keeps a lower profile but picked up a $15m pay package last year. Another long server, he has built up the firm over 16 years into a global player with more than 5000 clients in 100 countries. Industry sources say Wren takes a more hands-off approach with Omnicom’s agencies in contrast with their chief rival, Sir Martin Sorrell, the WPP founder who has a reputation for micro-managing. Sir Martin has regularly waded into public debates on corporate pay and has faced shareholder backlashes for the past two years over his own remuneration.