Omnicom, Publicis merge into biggest ad firm

• Merger alters the worldwide advertising landscape
• Downside%3A Regulatory hurdles and possible client conflicts at biggest advertisers
• Merger leapfrogs company over London-based industry leader WPP

In a move that dramatically alters the worldwide advertising landscape, marketing giants Omnicom Group and Publicis Groupe will merge to form the world's largest advertising holding company.

On Sunday, New York based-Omnicom Group and Paris-based Publicis Groupe announced they would combine in a "merger of equals" that has a market cap of $35 billion.

Omnicom's stock was up 0.5% in afternoon trading on Monday. Shares for Publicis, traded in France, have risen 0.1%.

The company will be called Publicis Omnicom Group and be led by Omnicom CEO John Wren and Publicis CEO Maurice Levy. They will be co-chief executives.

The marriage brings together well-known ad firms such as Omnicom's BBDO Worldwide, TBWA Worldwide and DDB Worldwide with Publicis' Saatchi & Saatchi and Leo Burnett. The new company will have more than 130,000 employees.

The deal could close as soon as the fourth quarter, Publicis and Omnicom said in a joint statement. The combined company is expected to be listed on the New York Stock Exchange and Euronext Paris under the symbol OMC.

Revenue for both firms was $22.7 billion in 2012.

The move empowers the companies to better service the traditional and digital advertising needs of clients, Levy said in a statement.

"This combination will enable us to leverage the skills of our exceptionally talented people, our broad public offering, enhanced global footprint, and tremendous roster of global and local clients," Wren said in a statement.

The merger will also help the companies in their growing Asian and Latin American markets, such as China and Brazil, where they each have ramped up operations to counter lackluster growth in weak European markets.

The combination should create $500 million in savings when they combine forces, according to a company statement.

But the decrease in competition could present regulatory hurdles.

There could be pushback from regulators in both the U.S. and France, said Rich Tullo, an analyst at Albert Fried & Co. The U.S. could be wary of one company controlling such a large portion of the market, he said.

Publicis Omnicom Group would own three of the world's five-largest media agencies, including the four-largest U.S. media agencies, according to trade publication Advertising Age.

In France, authorities might not take to any Americanization of a company that is a bright spot in the French economy, Tullo said.

The newly combined Publicis Omnicom Group knocks WPP from its perch as the world's biggest ad firm.

"It's an extremely bold, brave and surprising move," said WPP CEO Martin Sorrell in a statement. "It's a great deal for Publicis. … Time will tell if the cultures will click and whether clients and talent benefit."

Sorrell also noted that "co-CEOs is not an easy structure."

David Jones, CEO of ad giant Havas, let his nearly 18,000 Twitter followers know his feelings. On Saturday, when rumblings of the Omnicom-Publicis merger were emerging, he sent out this tweet: "Clients today want us to be faster, more agile, more nimble & entrepreneurial, not bigger & more bureaucratic & more complex."

Havas was the sixth-largest advertising holding group in the world in 2012 by revenue, according to Advertising Age. That year, Omnicom was ranked second and Publicis was third. Interpublic Group (IPG) was fourth, and Dentsu was fifth.

Despite what Jones says, his ad firm could be a part of future consolidation, says Brian Wieser, a senior research analyst at Pivotal Research Group.

Ad behemoths such as Havas, Dentsu and IPG will likely find others to combine with, says Wieser, with WPP possibly acquiring IPG.

Havas is more likely to buy a firm, rather than be acquired itself, Wieser says.

Pivotal Research Group said it would raise IPG's year-end price target to $21 from $16. On Friday, IPG closed at $15.87, up 1.3%.

"With news of Omnicom and Publicis merging, Interpublic will immediately be considered to be in play by investors," Wieser said in a research note.

He also noted that the combined companies will have more clout and buying power when securing media for their clients — such as when it comes to buying television ads.

But one competitor was quick to point out on Sunday that simply merging companies isn't enough to fully service media-buying marketers. Instead, those firms have to work cohesively.

"Getting scale in media investment management is critical for clients, but it only works if it all joins up," said Dominic Proctor, global president of WPP's media-buying unit, GroupM. "Media investment management relies heavily on scale, but scale counts for nothing if it continues to be disparate."

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This merger provides Publicis, which has faced questions about who will succeed 71-year-old Levy, access to Omnicom's well-regarded senior leadership, said James Dix, an analyst at Wedbush Securities.

One concern, says Dix, is if the two companies can strike a harmonious balance of power. That can be difficult to do in mergers of similar-size firms that are based in different countries, he says.

"You have these fiefdoms that keep people from playing together," says Dix. "One company is based in Paris, one is in New York. Where is the power center?"

While top executives may be comfortable with the structure of the deal, the adjustment may be more difficult for the next level of executives who run the firms' units.

"Now they have to fit together into a broader organization," he says. "If you lose clients or have defections of senior executives, then you have something that looked good on paper but didn't quite play out."

On Friday, Omnicom closed at $65.11, up 1.3%. Publicis closed at 59.35 euros, up 1.5%.

Contributing: The Associated Press