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Omnicom/Publicis Failed Merger Puts Spotlight on Interpublic

NEW YORK (TheStreet) -- Even the advertising sector is going to have trouble convincing investors that it's good news that the transatlantic merger of equals between Omnicom (OMC) and the French company Publicis (PUBGY) has collapsed. The combined company would have been the largest advertising company in the world.

Both Omnicom and Publicis have lost staff and clients who have become concerned about how they would fit into the enlarged group. Those clients will be hard -- if not impossible -- to encourage back.


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It would be wrong to assume this is the end of advertising sector merger-and-acquisition activity. With corporate clients becoming ever more global, the days of advertising companies focusing predominately on one geographic zone is over. The key is to bridge the personality issues and key managerial personnel choices well. Both of these issues apparently bedevilled the Omnicom/Publicis proposed link-up.

And this brings us to Interpublic (IPG), the second-largest U.S. advertising company, behind Omnicom. Interpublic's global ranking, however, is stuck at number five.

While Omnicom and Publicis were chasing dreams, Interpublic has been quietly getting on with it, noting in their most recent corporate report "a strong quarter in terms of organic revenue growth and earnings performance.... We believe that we remain well-positioned to meet or exceed our 2014 organic growth target of 3-4% and an operating margin of 10.3% or better." Interpublic also reported a further pay-down of debt and a continued buyback of shares -- both positive actions from a shareholder's perspective.

Along with global advertising leader WPP (WPPGY), Interpublic has been busily winning new clients and attracting disaffected Omnicom and Publicis staff over the past six months. This will benefit the business going forward.

Big picture, however, Interpublic has one big challenge and one big opportunity.

The challenge is relatively low sales exposure outside the U.S., just over 40% of total sales. But this is Interpublic's greatest opportunity too.

A strong top-four player in the U.S. is a corporate position that could easily fit together with other advertising businesses to the benefit of both. Publicis may now be merger-shy, but the more Asia-focused Japanese company Dentsu might be interested. And you can never rule out WPP, which may be No. 1 globally, but is less strong in the U.S. than they are in Europe or Asia.

A business that is "well-positioned to meet or exceed" its 2014 targets and has attractive business assets deserves investor consideration. As one advertising merger fades away, others may soon be apparent.

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At the time of publication, the author owned Interpublic shares but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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