Publicis Groupe to buy Digitas for $1.3 billion

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French advertising agency conglomerate Publicis Groupe's planned purchase of U.S. shop Digitas Inc. for $1.3 billion in cash will automatically entrench its position as one of the world's leading providers of interactive marketing services.

The deal, announced Dec. 20, will offer Publicis Groupe access to Boston-based Digitas clients such as AARP, Bristol-Myers Squibb, Cingular, Delta Air Lines, The Home Depot, IBM Corp., InterContinental Hotels Group, Kraft Foods, Lloyds TSB, Time Warner and Wells Fargo.

"We see this market moving to the digital area," Publicis Groupe chairman/CEO Maurice Levy told this writer on a conference call. "Digitas will help us help our clients move to the digital space. All our clients will be more than happy to see that we have a dominant force in that field, which will help take them to the next level."

Per the deal, Digitas shareholders will be offered $13.50 for each share. Both boards have signed off on the deal.

Digitas joins a Publicis Groupe portfolio that includes Publicis Worldwide, Saatchi & Saatchi, Leo Burnett, Publicis Groupe Media (Starcom MediaVest Group and Zenith Optimedia), Publicis Healthcare Communications Group, Publicis Public Relations & Corporate Communications and Publicis Events Worldwide.

With this acquisition, digital and marketing services will account for 34 percent of Publicis Groupe's revenue. Currently that sector accounts for 28 percent of its revenue.

The push into interactive began a few years ago, accelerated by recent purchases like India's Solutions, China's Betterway, France's Pole Nord, and Atlanta-based Moxie Interactive. The company also launched Denuo.

Publicis Groupe and Digitas share clients including Whirlpool, Procter & Gamble Co., Hewlett-Packard, Sanofi-Aventis, Heineken, General Motors and AstraZeneca.

These accounts encompass about 60 percent of Digitas' revenue. Publicis Groupe and Digitas handle between 85 percent and 90 percent of AstraZeneca's interactive work.

Digitas' top 10 clients account for about 68 percent of the agency's revenue.

There is no conflict in accounts from Digitas' side. Given Publicis Groupe's girth, there are major conflicts, Mr. Levy admitted.

"We have some very strong conflicts in our agencies, but we've been able to manage this because clients trust us," he said.

Chinese walls were in place to avoid issues arising from conflict, he said.

Interactive and digital operations will represent nearly 15 percent of Publicis Groupe's total revenue once the Digitas deal closes.

Founded in 1980, Digitas currently has more than 2,050 employees across its Digitas, Medical Broadcasting LLC and Modem Media Inc. agencies.

Contracts with most senior employees have been renewed. No layoffs are planned as a result of the sale to Paris-based Publicis Groupe, except in areas where employees managed Digitas' role as a publicly traded company.

Digitas will operate as an independent unit within Publicis Groupe. It keeps its name. Digitas CEO David Kenny will continue to lead the agency, reporting directly to Mr. Levy. He also will join Publicis Groupe's executive committee and head the overall group's digital and interactive strategy.

Mr. Kenny said other agency holding companies had approached Digitas for a possible acquisition deal, but he declined to name names.

"This is the partner we chose," he said.

Mr. Kenny has committed to stay on for three years with Digitas.

When asked, Mr. Levy admitted that integration was a common challenge with such acquisitions. But he stressed Publicis Groupe's track record, emphasizing how Saatchi & Saatchi fit neatly within its new parent's folds, while other rivals were long talking about integrating their own purchases.

"We know how to integrate people and that is something genuine to us, and that is because we have a sincere, deep respect for the culture we're acquiring," Mr. Levy said.

Digitas was attracted to Publicis Groupe for the conglomerate's diversity, entrepreneurial spirit and creativity, Mr. Kenny said. The prospect for international expansion also was a plus point.

"It felt like a culture fit," Mr. Kenny said.

Another consequence of the deal is the strengthened ties with online portals and media firms like Google, Yahoo and MSN. And then there is the global rollout of new technology platforms, too.

"We're a technical and operational partner, not just a communications partner," Mr. Kenny said.

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