UPDATE 1-Ad groups rise on Publicis-Omnicom shake-up
(Adds details, analysts quotes)
LONDON, July 29 (Reuters) - Shares in advertising groups jumped on Monday after Publicis and Omnicom said they would merge, as investors bet the deal would create an opening for rivals to poach defecting clients and potentially trigger more deals.
The French and U.S groups will overtake current industry leader WPP to form a $35.1 billion industry giant in a bet that agencies will need scale to invest in software and data analytics to keep up changes to the advertising business wrought by the Internet.
WPP was trading up 1.7 percent at 1005 GMT, while smaller agency Havas was up 6 percent. Publicis is due to start trading later in the day.
Analysts at Morgan Stanley said the new Publicis Omnicom group would be a stronger counterpart to digital giants like Facebook or Google, when it comes to negotiating the pricing for ads and investing in new software and data analytics.
"Consolidation may help regain pricing power in a very competitive industry."
Other groups could now do deals to stop falling into the gap between the behemoths such as the new Publicis Omnicom and WPP and the smaller creative independents, industry experts said.
U.S. group Interpublic, France's Havas and Dentsu, the Japanese group that bought Britain's Aegis a year ago, could all be involved in a new round of consolidation.
WPP, which has focused on buying agencies in the digital sector and in emerging markets in recent years, could also trigger bigger deals.
Bringing together Publicis brands such as Saatchi & Saatchi and Omnicom's BBDO Worldwide and DBB Worldwide will create new client clashes, analysts said, and rivals will waste no time in pitching for more business.
Publicis represents Coca-Cola, while Omnicom has Pepsi-Cola, for example, and between them they have all the major German auto companies.
French car maker Renault, which has been a client of Publicis for 50 years, uses the agency for both creative advice and to buy TV, web, and print ad space on its behalf. It will have to decide whether to modify that relationship now since its strategic partner Japan's Nissan works with Omnicom.
A spokeswoman for Renault said the group would make no comment until the Publicis-Omnicom deal closed.
Publicis and Omnicom management played down the risk of client defections, saying the overlap was minimal and they already operate with strict firewalls between their hundreds of agencies to prevent conflicts.
"Both of us have long experience of having separate brands, different operations, with Chinese walls between them, said Publicis CEO Maurice Levy at a press conference on Sunday.
"We think we can build solutions on this issue for our customers."
Nonetheless, some clients will take the opportunity to review accounts, particularly if they hadn't been briefed on the deal. Contracts between major advertisers and agencies sometimes include clauses that say they can be renegotiated in the case of major M&A deals that pose new conflict issues.
Julien Roch, analyst from Barclays, told Reuters the deal was actually good for the entire sector.
"Publicis and Omnicom get the synergies, while WPP, Havas and others can pick up bits of business from big customers reviewing contracts in light of the deal," he said.
(Reporting by Kate Holton and Leila Abboud; Writing by Paul Sandle; Editing by Giles Elgood)