Ad Merger: Publicis To Buy Digitas For $1.3 Billion

French advertising giant Publicis has agreed to buy interactive and direct-marketing firm Digitas for $13.50 a share or $1.3 billion in cash to boost its presence in the fastest growing part of the market. Publicis' offer represents a 23% premium over Tuesday's closing price.

The world's fourth-largest advertising group, which owns Leo Burnett, Saatchi & Saatchi and its namesake network, had been on the hunt for acquisitions to use its growing cash stockpile.

"It's good news strategically, and it is also a great use of the cash," said one sector analyst, who asked not to be named.

Publicis has made some smaller acquisitions in marketing services, an area that includes public relations and digital services and which is growing faster than traditional advertising, but some analysts had been hoping for a deal with more impact.

"This operation will constitute a powerful growth engine for all of Publicis Groupe in a context in which digital and interactive marketing and communications should represent more than 10% of all worldwide investment by 2010," Publicis Chairman and Chief Executive Maurice Levy said in a statement.

Publicis shares had closed up 2.7% to 30.73 euros in Paris before the announcement.

The deal has been approved unanimously by both companies' boards.

Digitas clients include American Express, General Motors, Home Depot and Time Warner. The company is based in Boston.

Publicis said it expected the deal to boost its earnings on an operating margin per share basis by about 4% in 2007 and by about 6 percent in 2008. Publicis defines operating profit as earnings before interest, taxes and amortisation.

Publicis added that its 16.7% operating margin target for 2008 remains unchanged.

Messier & Associates and Citigroup advised Publicis while Bear Stearns advised Digitas.