Omnicom, Publicis to merge to create ad giant
Publicis and Omnicom shareholders will each hold approximately 50 percent of the new company's equity in the deal, which the companies presented as a "merger of equals".
Publicis said the transaction was expected to create "significant value for shareholders", with expected synergies of $500 million. The merged group would keep its head offices in Paris and New York, it added.
Publicis said the deal, which had been unanimously approved by the boards of both companies, was expected to close in the fourth quarter of 2013 or the first quarter of 2014.
The merger means Publicis and Omnicom, the world's second- and third-largest ad groups, will overtake WPP in size. The new powerhouse will have a market capitalization of around $30 billion and annual sales of around $23 billion.
It will bring together Publicis brands such as Saatchi & Saatchi and Leo Burnett with Omnicom's BBDO Worldwide and DDB Worldwide.
The deal will not be without risks as it would likely face scrutiny from antitrust regulators because of the power the new company would wield in the ad buying world by spending roughly a combined $100 billion a year, or 20 percent of the global media business.
And major customers could balk at the agencies having conflicts if they also work for competing firms.
The deal, first reported by Bloomberg on Friday, would reshape the competitive dynamics of the advertising industry at a time when the rise of Internet marketing is leading to rapid changes in how big companies hawk products and hone their image.
To cope, the big five ad agencies have spent billions of dollars in recent years to expand in emerging markets from Brazil to China and scoop up digital marketing companies.
Omnicom had a market capitalisation of $16.8 billion at the close of trading on Friday, while Publicis was valued at 12.5 billion euros ($16.6 billion).
Omnicom is also larger in revenue terms, posting $14.22 billion in sales last year against $8.76 billion for Publicis.
Publicis was founded in 1926 by Marcel Bleustein in Paris after he left his job as a salesman at his family's furniture shop, with the company moving to the Champs Elysees 20 years later.
A successful deal with Omnicom would be a crowning achievement for Publicis Chief Executive Maurice Levy and Elisabeth Badinter, the daughter of Publicis' founder. Badinter is the group's largest shareholder with a 9.1 percent stake and also serves as board chairman.
Levy has turned Publicis into a global force during his 26 year tenure largely through savvy deal-making and a prescient push into Internet and digital marketing.
The group had an operating margin of 16.1 percent last year. North America accounted for almost half of revenue, and 37 percent of sales came from digital marketing.
Founded in 1986, Omnicom generated just over half of its revenue in its domestic market last year.