Mad Men Need Friends in Digital Age

Madison Avenue is famous for setting trends. Now, two of its biggest players are scrambling to catch up with the times.

Advertising giants Omnicom Group and Publicis Groupe surprised the media world over the weekend with an agreement to enter a merger of equals. A key motivation for the deal: create a larger company with more knowledge and power to purchase digital media controlled by Silicon Valley hotshots like Google and Facebook. The deal, which doesn't involve either company paying a premium, is easily worth the effort. The companies expect annual savings of $500 million, thanks to overlap in areas from research to information- technology platforms. The main risk: The merged company winds up losing clients because of a perceived conflict of interest. Omnicom, for instance, represents PepsiCo while Publicis has Coca Cola as a prized client. But as media holding companies comprised of several agencies each, Omnicom and Publicis are accustomed to managing competing clients. Barclays estimates that the merged company would need to lose 19% of its client revenue to wipe out all of the cost savings from the deal. That looks unlikely.