LONDON (CNNfn) - French advertising firm Publicis SA agreed Tuesday to buy U.K.-based ad agency Saatchi & Saatchi PLC for roughly 2 billion ($1.9 billion) in stock, creating the world's fifth-largest advertising company.|
Saatchi shareholders will receive about 500 pence a share, a 19 percent premium over the company's closing price in London Monday and a 39 percent premium over the average price of the stock for the past three months. Saatchi (SSI) shares rose half a penny in afternoon trade Tuesday to 431 pence, while Publicis (PPUB) slumped almost 14 percent to 409.1 in Paris.
The deal reflects a trend toward consolidation in the advertising sector. Publicis had sought to buy U.S. rival Young & Rubicam Inc. but was outbid by London-based WPP Group PLC (WPP), which won Y&R with an offer of $4.7 billion. That deal allowed WPP to leapfrog Interpublic and claim the world No. 1 spot from U.S.-based Omnicom Group Inc. (OMC: Research, Estimates).
"The mid-sized agencies are finding it increasingly difficult to compete in the global market," Paul Richards, an analyst at WestLB Panmure, told Reuters.
The acquisition bolsters Publicis' ambitions to go global, especially in the United States, as clients demand a global presence to serve their markets and customers.
In 1998, the French firm bought San Francisco's Hal Riney & Partners and Evans Group and in 1999 it bought a 49 percent stake in Burrell Communications Group.
Saatchi does nearly half its business in the U.S. market, which contributed almost 70 percent of its operating profits in 1999.
Publicis' client roster, including Nestle SA, L'Oreal SA (POR), the world's largest beauty products company, and Renault SA (PRNO), will be supplemented with Saatchi's client list that includes, Procter & Gamble (PG: Research, Estimates), Hewlett-Packard Co. (HWP: Research, Estimates), Toyota Motor Corp. and Sony Corp.
The new company, to be named Publicis Groupe SA, will have total billings of 2.1 billion and a market capitalization of $6.3 billion. It will be listed in New York and Paris.
The new firm also will have the fourth-largest media buying operation in combination with Publicis's Optimedia and Saatchi's 50 percent stake in Zenith Media.
Publicis said it will issue 4.1 million shares to pay for the deal, offering 1.64 new Publicis shares for every 100 Saatchi & Saatchi shares. The terms value the British firm at £1.24 billion. Shares of the French firm closed little changed at 476 on the Paris Bourse Monday.
Saatchi shareholders will own 31 percent of the combined firm, which will have a market capitalization of 6.3 billion, and would have generated revenue of 1.67 billion in 1999.
Saatchi grew into one of the world's largest ad agencies during the 1980s, before coming close to collapse after rapid expansion saddled the firm with huge debts, leading to the ouster of brothers Charles and Maurice Saatchi, the company's founders.
Renamed Cordiant, the company in 1997 split in two. Saatchi & Saatchi emerged as one of the two new entities. The company generated a record £735 million in new business last year and posted full-year pre-tax income of £36.3 million, up from £34.8 million a year earlier.
The Saatchi brothers no longer are connected to Saatchi & Saatchi, and operate their own firm, known as MC Saatchi.
-- from staff and wire reports