Updated from 11:49 a.m. ET to include closing share prices and additional data throughout
NEW YORK ( TheStreet) -- The blockbuster $35 billion merger of Omnicom (OMC) and Paris-based Publicis (PUB ) creates an intrigue worthy of a Mad Men episode. However, the "merger of equals" among advertising industry giants may have a relevance that stretches beyond the world of Don Draper.
Omnicom and Publicis are attempting one of the largest all-stock mergers since the financial crisis, and the deal may be an early indication that C-Suites across Corporate America could begin to consider such transactions as a way to bolster their shares in coming years.
Meanwhile, as Michael Dell and Silver Lake Partners continue to press for control of Dell (DELL) in the largest leveraged buyout since the financial crisis, the deal's closure or possible failure could mark the limits of debt-financed mergers in today's low-but-rising interest-rate environment.Put simply, Omnicom and Publicis' proposed merger may be a signal stock will soon be a better currency for acquisitions than debt, after a four-year market recovery puts most U.S. corporations at or above their pre-crisis record highs. Peel back the gloss of the champagne-filled weekend merger announcement, made on a balcony overlooking Paris' Arc de Triumph, and suddenly the deal has a very unexciting financial rationale. In fact, it may be more germane to number crunching stock analysts than ad industry power brokers, who are reported to have first broached the idea in a series of handshakes at Davos six months ago. Omnicom is trading in its slow but steady earnings growth and a large revenue base, particularly in the U.S., for exposure to Publicis' digital advertising capabilities and its faster earnings growth. Publicis, for its part, is getting increased exposure to U.S. markets, added revenue from a strong set of Omnicom brands, and a successor CEO. According to consensus Wall Street estimates, Publicis will provide the lions share of the combined company's near 5% revenue growth and near double digit net income margin. However, Omnicom will contribute the majority of projected revenue, EBITDA and net income for the combined company. For each share, Omnicom investors will receive 0.813 new shares in the newly formed Publicis Omnicom Group, a $2.00 special dividend and up to two more quarters of regular dividends. Publicis holders will receive one share and a EUR 1 special dividend. When combined, both companies appear on better track to grow their earnings and share prices, especially as they adapt to changing habits among their corporate clients and threats posed by IT industry heavyweights IBM (IBM), Oracle (ORCL) and Adobe (ADBE). Omnicom and Publicis shares surged in early Monday trading, however those gains faded through the day. Still, shareholder reaction indicates a fair stock-based deal, especially if investors become more confident it won't hit regulatory roadblocks. Even skeptics of the $35 billion merger appear to concede Omnicom, the larger of the merged companies, had limited ability to grow its earnings. Peter Stabler, a Wells Fargo analyst, characterized the benefits of the merger to Omnicom as "unclear," but said that the New York-based company's growth forecasts of 3.25% to 3.75% wouldn't be enough to move its share price materially higher. "
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV