Publicis is nominally fourth in the marketing services league, behind Interpublic, when ranked by global revenues. However, the gap has been closing steadily in the last year and they are now almost neck and neck. Study their market performance and you would hardly believe both have entered the same recession. Where Publicis, judging from its share price, has outperformed, IPG has significantly underperformed. The market capitalisation of the two companies eloquently tells the story. IPG is now valued at about $3.4bn whereas Publicis is worth $8.26bn, making it nearly two and half times bigger. We might add that, over the past year, Publicis’ position has been strengthened by the dollar/euro exchange rate moving in its favour (excepting bumps in the last few of days, of course).
But why would Publicis entertain such a thing, given all the turmoil it could cause? Imagine the account conflicts: the cars, the cosmetics, healthcare and technology accounts that would have to be sorted out…
A few ideas come to mind. First, IPG is temptingly vulnerable, whoever decides to have a tilt at it; and Publicis is better equipped than most. Despite Levy’s surface optimism about recovery, he knows as well as any other group chief that significant organic growth in the near future is a will-o’-the-wisp. With shareholders to appease, and assets cheap, another round of industry consolidation begins to look attractive. Never mind whether the acquisition is really earnings positive – or dilutive. With an astutely managed ‘merger’ no one can be certain for years to come. A big acquisition buys time and the benefit of the doubt (as Kraft well knows).
Second, Publicis has some unresolved business with Dentsu, the Japanese agency group with a 15% stake in the group. It has not been a happy arrangement. I noted, for example, tension between the two partners over the Razorfish acquisition last year. Acquiring IPG might be a way of diluting Dentsu’s influence by rebalancing Publicis’ portfolio. The Dentsu deal, in any case, comes to a close in 2012: Dentsu may want its money back. Dentsu and Publicis-owned Saatchi & Saatchi share a worldwide interest in the Toyota car account. Could there be a bargain to be struck there, for example?
Lastly, never underestimate the human factor. Publicis Groupe chief Maurice Levy is nearing the end of his long and successful tenure. He may wish to bow out on a high note. And this would certainly be a ‘C’ to crack the chandelier.
According to those in the know, the detail of any such bid would be managed by Isabelle Simon, senior vice president at the French global marketing services conglomerate. More important than the title is the fact that she is charged with acquisitions policy at Publicis. Simon has had a high-flying career as lawyer and financial whizz-kid, in both the United States and Europe. Her last job was as an executive director at Goldman Sachs, where she specialised in M&A and capital market transactions. She was poached by Levy last February. The telephone-number salary attached to her suggests he wasn’t thinking of a couple of cheap infill acquisitions.