THE DEALMAKER
Adam Emmerich, a New York–based corporate partner at Wachtell, Lipton, Rosen & Katz.
THE CLIENT
Paris-based Publicis Groupe, the world's third-largest advertising company.
THE DEAL
Publicis and New York–based Omnicom Group, the second-largest advertising group in the world behind London-based WPP, will merge in an all-stock, tax-free transaction.
THE DETAILS
In a deal announced Sunday, Publicis and Omnicom agreed to a merger of equals that will create the world's largest advertising company, with $35.1 billion in market value and $23 billion in combined revenue. The deal calls for Publicis shareholders to receive one share of the newly formed combined company, to be called Publicis Omnicom Group, in exchange for each Publicis share. In turn, each Omnicom share can be exchanged for 0.813 shares of the new entity.
The shareholders of each company will own roughly 50 percent of the new entity, which will be incorporate in The Netherlands, while its operational headquarters will be split between New York and Paris. Publicis shareholders will also receive a special dividend of $1.33 per share, while Omnicom shareholders will get $2 per share and could also eventually get two more regular quarterly dividends of 40 cents per share.
Upon closing, which is expected by the first quarter of 2014 at the latest, Publicis CEO Maurice Lévy and his Omnicom counterpart, John Wren, will serve as co–CEOs of the 130,000-employee company. That arrangement will continue for two-and-a-half years after the merger takes effect, at which point Wren will be CEO and Lévy will serve as nonexecutive chairman.
Wachtell advised Publicis along with Paris-based Darrois Villey Maillot Brochier and Dutch firm NautaDutilh. Omnicom was advised by Latham & Watkins and Dutch firm De Brauw Blackstone Westbroek.
BIG PICTURE
By joining forces, Omnicom and Publicis will leapfrog over their biggest competitor (apart from each other), WPP, to become the world's top advertising company with the largest merger the industry has ever seen. Their combined client roster includes heavyweights like Bank of America, BMW, and Johnson & Johnson, as well as overlapping clients like McDonald's and Procter & Gamble. Of course, there could also be potential conflicts as Coca-Cola and Verizon are Publicis clients, while Omnicom does work for PepsiCo and AT&T. However, Reuters reports that the companies' extensive network of smaller agencies is set up to work separately from one another, and Lévy does not expect any client defections over such perceived conflicts.
The deal is also expected to draw antitrust scrutiny from regulators in the United States and Europe, though The Wall Street Journal reports that the companies have already sought to placate French authorities by keeping half of the split headquarters in Paris instead of consolidating in New York and preserving the considerable number of French jobs that would otherwise be lost.
The advertising industry has experienced its fair share of consolidation, as evidenced by the roster of smaller ad agencies that already populate the Omnicom and Publicis portfolios—a list that includes BBDO, BBH, DDB Worldwide, and many more. Barrons notes that one-third of the combined company's revenue will come from digital advertising, and the company will likely look to expand its online marketing capabilities as the advertising industry shifts its focus to digital platforms.
THE BACKSTORY
Emmerich says Wachtell's relationship with Publicis goes back nearly 20 years and that the firm has helped the French company on a number of acquisitions that include recent attempts to beef up its digital offerings. Wachtell advised Publicis on its $575 million purchase of digital marketing company Rosetta Marketing Group in 2011, as well as its acquisitions of digital marketers Razorfish (from Microsoft for $530 million, in 2009) and Digitas (for $1.3 billion in 2007).
That said, this merger marked Emmerich's first time working on a deal for the longtime Wachtell client. While the corporate partner had yet to work with Publicis, he had fairly recent experience working with some of his legal collaborators on the merger. Emmerich led a Wachtell team advising European Aeronautic, Defence & Space Company (EADS) on its failed merger with BAE Systems last fall. Wachtell advised EADS on U.S. aspects of that attempted deal—which fell apart due to political squabbling—while Nauta Dutilh advised on Dutch law and Darrois Villey and Magic Circle firm Clifford Chance served as EADS's lead advisers.
ON CLOSING
That this transaction is an all-stock merger, with shareholders of both companies owning equal parts of the final product, makes it more challenging in certain ways than the typical deal that sees one company acquire another outright.
Emmerich says there is "fundamentally, a different thought process" that goes into advising on a merger of equals. Lawyers on this deal needed to structure mechanical and technical aspects of the transaction such as governance arrangements. A merger of equals also eliminates a number of considerations—including postclosing adjustment and indemnity—that lawyers working on typical acquisitions normally need to worry about.
That's not to say that it was an easy assignment for the Wachtell team. Emmerich—who was also advising a special committee of Activision directors in connection with that company's $5.83 billion share buyback from Vivendi, which was announced on July 26—and the rest of the New York–based Wachtell team needed to work with a pair of European firms to lead a globally coordinated team effort for their Paris-based client.
Though all of Wachtell's lawyers are based in New York, Emmerich says "more than half" of the firm's deals involve some type of cross-border component. As such, the firm has worked to perfect the art of working with legal partners across the globe. In addition to the firm's past work with Nauta Dutilh (including on the attempted EADS/BAE merger), Emmerich says Wachtell has a close relationship with the lawyers at Darrois Villey, who in turn have a close relationship with the in-house team at Publicis.
"Our view is that our ability to partner with the best firm and the best firm for the particular assignment in each jurisdiction around the world provides a fabulous solution for the client," Emmerich says. That familiarity helped the Publicis lawyers put together an "all-star team with the best lawyer for the job in Paris and the best lawyer for the job in Holland, and so forth," he adds.
That type of cooperation is imperative to Wachtell's success in cross-border M&A, and Emmerich says it's an approach that benefits the client as well. "The team approach, where every firm has a very, very strong incentive to make each assignment a successful one, yields the best result and gives the client the most responsive, the most engaged, the most expert team possible," he says.
