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US-based Omnicom Group Inc and France's Publicis Groupe SA announced on Sunday they had signed a definitive agreement for a merger of equals, which will create the world's biggest company in communications, advertising, marketing and digital services.
The new company will have combined 2012 revenue of $22.7 billion. Based on its closing price on July 26, Publicis Omnicom Group will have a combined equity market capitalization of approximately $35.1 billion.
The merged group will have more than 130,000 employees, who will be jointly led by Omnicom CEO John Wren and Publicis Groupe CEO Maurice Levy.
Wren said: "Both Maurice and I believe this new company reflects our vision of retaining the best talent, attracting an incredible roster of clients and leading innovation.
"Omnicom and Publicis Groupe are reshaping the industry by setting a new standard for supporting clients with integrated messaging across marketing disciplines and geographies.
Publicis Groupe and Omnicom's CEOs will lead the company as co-CEOs through an initial integration and development period of 30 months, following which Levy will become non-executive chairman and Wren will continue as CEO.
The merger will knock British advertising giant WPP Plc, a major rival, off the throne as the world's biggest agency. WPP reported 2012 revenues of $16.4 billion.
Sir Martin Sorrell, WPP chairman, was described by The Daily Telegraph UK newspaper as "relaxed about the end of his reign as head of the world's biggest advertising agency" but hinted he may not be deposed for long.
"Further consolidation is now inevitable," he said after hearing news of the deal, fueling industry rumors that WPP could make a move for US-based Interpublic Group, Havas SA in France or Japan's Dentsu Inc.
He added: "This is an extremely bold, brave and surprising move. It is a great deal for Publicis with a nil premium merger. Maurice Levy is to be congratulated.
"Time will tell whether the cultures click, which clients benefit and how the synergies are achieved without any job cuts."
Mike Amour, CEO of Asia-Pacific at advertising network Project Worldwide, said the newly merged firm Publicis Omnicom Group will now be better able to compete with global giant WPP, especially in terms of pursuing business in India and China.
"WPP has made strong inroads there over the past 20 years. Omnicom and Publicis have been slower in that regard, so this will accelerate their ambitions in these geographies," he told CNBC.
The combination brings together the most extensive portfolio of agencies, including such iconic agency brands as BBDO, Saatchi & Saatchi, DDB, Leo Burnett and TBWA.