Global ad agencies Publicis and Omnicom announced a $35bn merger over last weekend. A trust review needed in about 45 countries, but if approved, it could bring rival accounts like Coca-Cola and Pepsi under one firm. CNBC spoke to John Wren, the President & CEO of Omnicom Group and Maurice Levy, the Chairman & CEO of Publicis Groupe, who will now serve as joint CEOs for the first 13 months of the Publicis Omnicom Groupe.
Q: We were just joking about how you guys kept this quiet? It's been written that this started almost as a joke, Maurice? True?
Maurice: As a joke? Yes, it started as a joke. We were on the terrace of the Publicis building, and John said, this is a priceless view, and I said you can get it.
John: (Laughs). Yes, it started that way. And then, over time and other social occasions, we went 'Are you really kidding?' And it escalated, and then we started having more private, serious conversations, and it turned out that it was actually possible to accomplish. And we have.
Q: What are the strategic circumstances that led you to even think of this?
Maurice: I've been in this industry for 40 years, and I've been leading Publicis for a quarter of a century. I have done a lot of deals, but this one has a lot of reason to exist. The most important one is that it's an excellent combination for clients. We have to think first about the clients. That this new world is creating issues for clients, and we believe that this combination is something which will help them cope with all these changes which are happening in this world, and partly with the internet giants. So this is something which has a lot of good vision.
John: The marketplace has moved, and it's changing. It changes every day now. Until ten years ago, it didn't change very rapidly. You had time to absorb the changes, intellectualize them, re-educate your people. Changes now are instantaneous. This gives us the combined resources and the assets that we can service every client need, and be fairly nimble at the same time in being able to shift to the changing marketplace.
Q: Can you give us some specifics then? How is this going to position you to compete with Google in this new world that you are describing that changes so quickly? Because when you think of your companies, we think good old fashioned advertising, on television or in magazines, or other analog media.
John: Our businesses are much more robust than that, today. We have trading desks that trade digital media, that look like you were sitting here (the NYSE) versus sitting in a building with a roomful of buyers. The way the data gets used, in terms of getting it accumulated... There's always been data around. But we now have the ability to gather that instantaneously, sort it, use it to come up with meaningful data that can be used analytically to create insights for target markets. And it's fundamental. Maurice's company is doing it, and has been very successful. We've been doing it, very successfully. The combination of putting those resources together, allows us to have a different level type of conversation with the Facebooks of the world, the Googles of the world, and it allows us to stay at the cutting edge, principally for the benefit of our clients.
Maurice: We don't want to compete against them. We are already collaborating, and if we are doing this, it is to avoid competition. We don't believe that it should be good, to have Google and the like having a position which is such that is minimizing the role of advertising agencies. And by strengthening our position, we are helping our clients to deal on an equal footing with these big players. So it's not something which is against anyone, it is something which is done for the benefit of our clients. And we do believe that by putting our resources together, our intellectual capabilities, all our people, and our investment capabilities, we will help our clients much better than what we do currently individually.
Q: But what's interesting about this though is that there are some analysts saying that this isn't a done deal yet. We know the regulators, especially the French, can be very nationalistic when it comes to anti-trust concerns, as well as 80% of the market owned potentially by the big four, if your merger goes through. How do you answer that, and guarantee that not only does this get done, but it gets done in a speedy way?
Maurice: There is certainly a path to go through, and we will have to deal with all the issues. We do not anticipate any major hurdle. Regarding the French reaction, what we can tell you is that we have received numerous congratulations coming from the political side of France. So this is something that is quite interesting. I'm not saying that the world is changing. I'm just saying that the French government has received this information as something as being a very good step for our industry, for our companies, and for the French market.
Q: The deal is structured as a true 'merger of equals'. But executing can be very difficult. And history is littered with failed merger of equals. What gives you the confidence that you guys can pull this off?
John: Well, first of all, we've known each other for quite a while. The other thing is that the nature of our business, all the agencies that you've accumulated, are used to periods where you have to collaborate, and the rest of the time they don't have to collaborate. They can compete. That's true with all the advertising brands that are under Omnicom. That if it's a new piece of business, that's great, they'll compete against siblings. If it's a common piece of business, they've learned that at this point, that they have to co-operate. That transition won't be very difficult. That's most of our folks. Obviously, there will be some hard choices that will have to be made. But, we've committed ourselves that we'll take the decisions, make the hard choices and we'll move on.
Q: Have you heard comparisons to 'Mad Men', and the storyline in 'Mad Men' that involves a merger?
Maurice: Yes, we have heard.
John: I wasn't into 'Mad Men', but I came in at the end of it. I sat in the merger that created Omnicom in 1986. And a lot of things that could be improved when we got started, we have that as a learning. And we grew up from $700 back then to almost $15bn now. So yes, there are going to be challenges...
Q: Including losing key clients though?
John: No, I don't think so. That is possible, and we have provided for that. But I would guess that out of $23bn, most clients are comfortable, and long ago they've got passed the conflict issue. Because as an industry, every one of us, including our competitors has learned to build firewalls to solve some of those issues. There will be some, of course, but not much.
Maurice: We don't anticipate a lot of difficulties. We think there will be some discussion; there will be some question, which is absolutely fair and normal, coming from advertisers that would like to see how we can guarantee how the firewall will be working and how the competition will be aligned. And this is something that we're used to do. And as John said, our competitors are also doing this already. So it's not something which is totally new to us. Clearly, there are some emotional aspects for some clients, for which competition is fiercer. But we will have to deal with this in a nice way and explain this situation. And work with them, in order to find the right way of dealing with these issues. So clearly, it's not yet a big hurdle to jump over. But I believe that working together with our clients... We have great relations with them; I have called many of them. John has done the same. The reaction has been overwhelming and extremely positive. Because they see, and that is the most important thing, they see the benefit for them.