Publicis And Omnicom CEOs Tell Wall Street They Don't See Any Client Losses In Merger
Omnicom
John Wren
Omnicom CEO John Wren and Publicis Groupe CEO Maurice Levy were asked repeatedly about client conflicts on their call with Wall Street investors this morning. The call was held to describe the merger of their agency holding companies into a massive combination, Publicis Omnicom Groupe.
That merger occurred with little warning this weekend, after news leaked on Friday.
Both men reassured analysts that they did not believe any major client would defect. But analysts seemed skeptical at the idea that there would be no negative fallout from the combination.
The pair also addressed the stock dividends that the new company wll pay. They started out by saying it would be 35% of net income, but then back peddled and admitted that was merely a goal not a hard number.
Lastly, they were asked about divestitures — the idea that some of their agencies are now redundant or replicative and should be sold. No reassurances were given, although no major sales are planned.
Here are the slides that go with the call.
And here is Wren's letter to staff on the merger.
Here's our live coverage of the call:
Wren is speaking ... He says stock holders' shares will be worth a 50-50 split of the equity on the new company.
Now Levy ... He starts by expressing the longtime respect he's had for the Omnicom group.
Looks like this call is going to be big on rhetoric. We're hearing a lot of about strategic visions and new standards, and not many specifics.
The new company will have 130,000 employees.
"Our company will be the very best place to work for those who thrive on a changing strategy."
There will be "fun," Levy says: "The quality of passion and engagement that comes from doing stimulating meaningful work for great clients."
The phrase "sets a new standard" seems to be Levy's mantra.
Now he's talking about the rise of digital, says POG will be best placed to tackle it.
Here's a snapshot of the new company:
Publicis Omnicom Groupe
Wren says they'll have 7 of the 15 most awarded agencies in the world. "We have the best brands across every discipline," Wren says.
And here are its financials:
Publicis Omnicom Groupe
Wren says the new company will have much better coverage of developing countries:
Publicis Omnicom Groupe
The new company will have $2.6 billion in free cashflow, Levy says.
In the S&P 500, the new company will be bigger than Yum! Brands:
Publicis Omnicom Groupe
"The transaction has been structured as a true merger of equals" and there will be no tax implications, Wren says.
OMC holders will receive a $2 special dividend. PUB holders will get 1 euro, and the new company will be based in the Netherlands for tax reasons, Wren says.
Levy and Wren will be co-CEOs for 30 months, after which , "I will continue as the company's CEO," Wren says.
They will combine credit facilities at both companies, Wren says. Dividends will continue to be paid at around 35% of net income, Wren says.
Levy is wrapping up: POG will have the best of everything "under one roof." "We have very similar corporate cultures and core values." "We share a clear vision for the future of the industry."
"This merger of equals creates a new standard for our industry." [That phrase again!]
Questions!
Q: Have you guys talked to clients and what will be the client losses?
Wren: We've spoken to all of our specific clients ... there's nothing significant to speak of for the most part most of them simply congratulated us.
Levy: On the Publicis side we did exactly the same ... the reaction has been extremely positive ... we will have time to look at the various issues ... we don't anticipate any major hurdle or any major problem.
Q: Savings?
Wren: The savings can't begin until after the transaction is complete.
Levy: We were looking at key areas where we could generate more revenues ... and also thanks to the combination of our organizations we could get some important savings partly from third parties.
Q: Difference in financials, accounting bases? How might the accounting change? What's the new tax rate? There is a perception i think that this kind of trans would lead to conflicts that might cause you to lose some clients? Did the world change, did that used to be a bigger risk?
OMC CFO Randall Weisenberger: A few line items in different geographies will be different.
Wren: "We're going to work extremely hard with our clients and come up with creative solutions but I don't think no single client is big enough to disturb the deal."
Levy: "There is nothing that could derail the combination." Holding companies are already handling conflicts. "This is the story of our lives these days ... there is a limited number of players in the advertising field."
Q: Tech acquisitions. Buying vs building.
Wren: The two companies and two strategies complement each other in many ways. ... when you join those two together we become incredibly powerful.
Levy: "We have two different strategies ... we had the choice in investing massively to increase our analog position or our digital, ... we had to invest in digital. ... so this make a complementary operation ... we need to make an inventory ... how we will be organizing." [Levy makes it sound like they haven't actually figured out how to organize the new company yet on an agency by agency basis.]
Q balance sheet payout points. OMC has been strong on payouts. Leverage appetite for new company?
Wren: The company has to get formed first ... [We'll buy the companies we need and then] with the balance of our free cashflow we'll probably use it for buybacks.
Levy: We are absolutely on the same line. [They intend to try to stick to that 35% of net income dividend payouts.]
Both men keep saying they'll have to ask their new board — which sounds like they're leaving wiggle room to get out of that 35% commitment later if need be.
Q: Feedback from big digital internet players? How will it change your relationship.
Wren: "All I've gotten is love letters." [Laughs.]
Levy: "I got the same."
Q: Do you think it will accelerate the creation of standards in digital format in digital? (Lack of standards has been holding back spending) Is the 35% a gradual goal or is it immediate?
Levy: "On the dividends, clearly we will have only one ratio and that ratio if it is approved by the board will be 35% or around 35%, 31, 32, 33 I don't know." ... Regarding standards in digital ... we are working with teams at Facebook on new standards and the fact that we are combining our forces ... the sheer size of the operation will give us a responsibility to help defining new standards ... for the benefit of the industry and all of clients."
Q: Where will the $500 million in savings come from?
Weisenberger: Third party costs, health care, insurance programs, research, systems, procurement, by almost doubling our volumes on either side we can see some significant opportunities.
CFO Jean-Michele Etienne: IT will be another area.
Q: Client losses - what are the estimates? You might lose 8-10% of revenues to client conflicts.
Levy: "We have been through many operations mergers in the last few years ... what you see, through al this period we have not lost at the time of the merger one single large client. Not one single large client ... sure there are some competitors who would like to see us losing some large accounts. ... I'm not saying we will not have any issues. ... I'm absolutely certain this will be a very good merger with very, very, very little revenue lost."
Q: Why this merger now, why now as opposed to several years ago?
Levy: Several years ago I think OMC and PUB would not have made a merger of equals.
Wren: The stars aligned.
Q: Any divestitures planned? Big data and enhanced scale in media buying?
Wren: Divestitures - "there's no significant divestitures planned at the moment. We'll listen to the regulatory bodies."
Levy: Media - this market is highly competitive. ... We believe the competition will remain fierce in this segment.
Q: He jokes that the HQ should have been in Italy ... CMO/CIO opportunities ... the challenge coming from non-traditional players like IBM and Accenture ... what is the major challenge for this merger? Improvement in organic growth?
Levy: Regarding Italy, the only place that would have worked well was already busy - the Vatican. [Laughter]. ... (He's not seeing any problems in terms of the merger.) "All our assumptions are extremely, extremely reasonable." "On organic growth" ... (when you align all the resources) "this will dramatically generate more growth." (Growth will come from areas where clients couldn't previously get everything under one roof.)
Levy declines to put a number on the increased organic growth ... and that's it! The call ends.
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