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Omnicom Group Inc. (OMC), Publicis Groupe S.A. (ADR) (PUBGY): The $35 Billion Advertising Agency Merger

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Recently, Omnicom Group Inc. (NYSE:OMC) and Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) announced they would merge with each other to form the world’s leading advertising and communication company, Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) Omnicom Group. The combined company is estimated to be worth more than $35 billion, and jointly led by the CEOs of both Omnicom Group Inc. (NYSE:OMC) and Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY). Let’s take a close look at this merger deal.

Omnicom Group Inc. (NYSE:OMC)

Omnicom Group Inc. (NYSE:OMC) and Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) snapshot

Omnicom Group Inc. (NYSE:OMC) is considered the leader in global advertising, marketing and corporate communication, operating in four main segments: advertising, customer relationship management (CRM), public relations and specialty communications. Most of its revenue, $6.76 billion, or 47.6% of the total revenue, were generated from the advertising segment. The CRM segment contributed more than $5.12 billion in sales while the public relations and specialty communication segments accounted for 9.1% and 7.3%, respectively, of the total 2012 revenue.

Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) is based in France, operating in four main segments: advertising, digital, specialized agencies and marketing services (SAMS) and media. The advertising and digital segments were the two biggest revenue contributors, accounting for 30% and 33%, respectively, of the total 2012 revenue, while the SAMS and media segments represented 19% and 18%, respectively, of the total sales.

The merger deal

The merger  will create the biggest global agency with the strong network of more than 130,000 employees on five continents. Moreover, the combined company will have the deeper coverage across fast growing areas/countries. In 2012, the combined company had around $22.7 billion in revenue and $3.1 billion in operating income. The Earnings Before Interest, Taxes, Depreciation and Interest (EBITDA) came in at around $3.6 billion, with free cash flow of $2.6 billion. The merger synergies were expected to be around $500 million, including $260 million savings on third party services from increased scale and duplication elimination and $240 million savings from pooling of resources and infrastructure.

Investors of the two companies might be quite excited with their recently announced special dividend payments because of the deal. For each Omnicom Group Inc. (NYSE:OMC) share, Omnicom Group Inc. (NYSE:OMC)’s shareholders could get 0.813 shares of the new company and a $2 special dividend. For each Publicis Groupe S.A. (ADR) (OTCMKTS:PUBGY) share, investors could get 1 share of the new company and a €1 special dividend per share. Its payout ratio of the combined company is targeted to stay around 35%, higher than each separate company.

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