Publicis Groupe SA’s merger with Omnicom Group Inc. is seen by antitrust experts as likely to draw intense scrutiny and may even be blocked by U.S. regulators.
The transaction, the culmination of years of consolidation in the global advertising market, will probably spark opposition from corporate customers concerned with the power the merged firm may wield in the advertising market, said Bert Foer, president of the American Antitrust Institute, which advocates strong enforcement of antitrust laws.
“The merged firm is going to be able to influence strategy for an entire industry,” Foer said in a telephone interview. “They will have a unique ability to tell clients, ‘Here’s what you need to do,’ and an enhanced ability to coordinate strategies such as when to introduce new products, how to price them and how to market them.”
Chief executives of both companies said at a press conference announcing the merger yesterday they didn’t expect to face regulatory hurdles. If approved, the union of Paris-based Publicis and New York-based Omnicom will overtake market leader WPP Plc, creating an advertising powerhouse with $35 billion in market value and about 41 percent of total spending by the top 10 media agencies in the world, according to data compiled by Advertising Age.
Allen Grunes, an antitrust lawyer with GeyerGorey LLP in Washington, said the transaction may be the one that triggers a review by antitrust regulators.
Efforts by the companies to highlight the benefits to consumers of cost savings may not be enough to outweigh arguments that the merger could hurt consumers, Grunes said, because of reduced competition in the advertising market.
“I don’t see an effective efficiencies theory and if there are complainants they may come up with an effective theory of harm,” he said. “I don’t see this being solved by divestitures either, so all of this makes me say this may be one deal too many.”
In the 28-nation European Union, the deal may also be the subject of close scrutiny. Given the market, the review “will be interesting,” said Peter Alexiadis, an EU competition lawyer in Brussels with law firm Gibson Dunn & Crutcher LLP.
“It is occurring at a time when some of the fundamental conventional wisdoms about the role of advertising are being challenged,” Alexiadis said in an interview. This includes challenges “through the growth of the Internet and its impact on geographic market definition” and “the pressures on advertisers to developing scale in the servicing of large international clients.”
The European Commission in Brussels, which has the power to block transactions in the EU or extract remedies from companies before approving a deal, hasn’t yet been notified of the deal, Ryan Heath, a spokesman for the EU regulator, said.
“If and when there is a merger, the companies must know from whom to obtain regulatory clearance,” said Heath. “It can be the Commission, the national competition authority or several national authorities.”
The alliance will bring under one roof agencies including Omnicom’s BBDO Worldwide and Publicis’s Leo Burnett and Saatchi & Saatchi, extending their presence in every major market. If approved, the transaction is expected to be completed by the first quarter of 2014.
It isn’t clear which of the two U.S. antitrust agencies, the Federal Trade Commission or the Justice Department’s antitrust division, is going to review the merger. The agencies usually agree which will review a transaction based on a clearance process that awards the responsibility to the agency with the most expertise.
Gina Talamona, a spokeswoman for the Justice Department, and Peter Kaplan, a Federal Trade Commission spokesman, declined to comment on the merger.
“I’m not so sure there’s an antitrust problem,” Robert Doyle, an antitrust lawyer with Doyle, Barlow & Mazard PLLC in Washington and a former FTC official, said in a telephone interview. “If a big corporate client like Pepsi thinks it’s getting taken advantage of, it will find someone else.”
Large corporate clients that use advertising services aren’t likely to let the merged firm dictate rates, Doyle said.
“They can easily go to second-tier firms and cobble together an international presence,” he said. “There is no significant market power here, no barriers to entry.”
Doyle said he expected the Publicis-Omnicom review to go to the Justice Department’s antitrust division.
Publicis, Omnicom and London-based WPP, led by Martin Sorrell, have grown through consolidation over decades as they vie with each other for accounts. Global ad spending will probably rise 5.1 percent next year, accelerating from 3.5 percent in 2013, according to ZenithOptimedia, a researcher that’s part of Publicis. Growth may reach 5.8 percent in 2015, ZenithOptimedia said.
Jonathan Kanter, an antitrust lawyer with Cadwalader, Wickersham & Taft LLP in Washington, said he expects the transaction to get a very close look from antitrust regulators.
He said “it won’t be an easy task” for the reviewing agency to come up with a theory of harm in such a complex and fragmented industry “where the subsidiaries of the merged company often compete with each other for business.”
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