Omnicom Group's CEO Hosts Proposed Merger of Publicis Groupe and Omnicom Group Conference (Transcript)

| About: Omnicom Group (OMC)

Omnicom Group Inc. (NYSE:OMC)

Proposed Merger of Publicis Groupe and Omnicom Group Conference

July 29, 2013 8:00 am ET

Executives

John D. Wren - Chief Executive Officer, President and Director

Maurice Lévy - Chairman of Management Board, Chief Executive Officer, Chairman of Publicis Conseil SA (France), Chairman of the Board of Mlms SA (France) and Chief Executive Officer of Publicis Conseil SA (France)

Randall J. Weisenburger - Chief Financial Officer and Executive Vice President

Jean-Michel Étienne - Chief Financial Officer, Executive Vice President of Fnance and Member of the Management Board

Analysts

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Charles Bedouelle - Exane BNP Paribas, Research Division

Craig Huber

Daniel Salmon - BMO Capital Markets U.S.

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the conference call to discuss the proposed merger of Publicis Groupe and Omnicom Group. The first portion of the call will address an investor presentation, followed by a question-and-answer session. [Operator Instructions] As reminder, this conference call is being recorded.

I'll now turn the call over to Omnicom's CEO, Mr. John Wren; and Publicis' CEO, Mr. Maurice Lévy. Please go ahead, gentlemen.

John D. Wren

Good morning, ladies and gentlemen, and thank you for joining us. My name is John Wren, and I'm the CEO of Omnicom Group. We're excited to have the opportunity to discuss the proposed merger of Publicis and Omnicom. If you have not had the chance to read the press release, you can find it and the investor presentation on our respective websites, where you will also find the presentation archived.

Before we start, I'd like to remind everyone that certain comments we make today may constitute forward-looking statements. These statements are our present expectations, and actual events or results may materially differ. This morning, I'm going to offer a few introductory remarks on the first couple of slides. Maurice Lévy, CEO of Publicis, will give a strategic overview on the transaction. We'll also discuss our combined portfolio of companies and give you the key details of the merger. As I said, we're extremely pleased to announce the merger of equals between Omnicom and Publicis to create new Publicis Omnicom Group. We've come to this transaction as 2 leaders in the industry, both with demonstrated track records of success. Our combined companies will bring together the best talent, top clients and leading innovators to create a global leader in advertising, marketing, digital and communications services, and it is our expectation that the merging of our strengths will yield even more value over time as we build on the benefits we gain from operating together. The merger is going to allow our combined companies to continue to execute on the strategies that are the foundation of our individual successes. By that, I mean attracting and retaining the very best talent, expanding our global footprint and pushing it to new service areas, investing in the digital and analytical capabilities of our agencies and partnering with innovative technology companies to state the leading edge of the latest developments. And most important, delivering innovative solutions created from meaningful consumer insights to help build our clients' brands.

On Slide 2, we show a snapshot of the transaction, which we'll cover in more detail later in the presentation. We have structured the combination as a true merger of equals in which the shareholders of each company will own approximately 50% of the equity. As you can see, Publicis and Omnicom are comparable both in market capitalization and net income. Based on the closing prices on July 26, 2013, the newly formed Publicis Omnicom Group will have a combined market cap of more than $35 billion and EUR 26.5 billion, and net income of approximately $2 billion and EUR 1.5 billion. We will cover the governance structure in more detail later. But for now you should know that the overall governance is also well balanced, reflecting the economic spirit and a true merger of equals. And I think one of the most important messages we can get across about the new company is that we'll have more than 130,000 employees who, we believe, represent the very best talent in the industry.

Before I turn it over to Maurice, I want to say that I've had great respect for many years for Maurice, and what he and his team have been able to do to create Publicis. The lengthy process of getting our companies to the altar has only deepened my respect, and I sincerely look forward to seeing what we can achieve together for both our clients and our shareholders.

Maurice Lévy

Thank you, John. [French] I am also delighted to be with you today to talk about this terrific combination of 2 communication industry leaders. It has been, as John said, a respectful and thoughtful process that has really shown the deep value that are fundamental to the success of each of our organizations. I have always had only the respect and admiration for what Omnicom, John and his teams have accomplished. This is a new world in which we and our clients operate. And Publicis and Omnicom are both leaders in a breaking dramatic change in our industry. Before the acceleration of new media, the rapid growth of Internet giants, the blurring roles of all players and the importance of big data and consumer insights continued to alter the media landscape in complex ways. That has created exciting new opportunities for our industry, our clients and our people.

With the creation of Publicis Omnicom Group, we will have the ability to provide best-in-class marketing communications services that will support our clients, develop and attract the best talent and enable our shareholders to continue to invest with confidence in an even stronger communications enterprise.

The new chapter we are opening is, first and foremost, a story of talent and innovation in a world being reshaped by technology. And we must continue to invest in the tools and the models that we bring to our client the most effective and efficient marketing solutions, integrated solutions that cross the lines between disciplines and geographies, and between channels and devices.

As one strong company, we can better capitalize on the talent of our people, the diversity of our culture, and the quality of our innovation to provide the truly powerful solutions our clients need.

Turning to Slide 5, we firmly believe that together, we can reshape our industry and set a new standard for global advertising and marketing services. There is a great deal of information on this slide, so let me highlight 3 points. As John said, our combined company will have 130,000 employees, and it will be because of our employees that we will be able to accelerate the adoption of new solutions across our agencies through our continuing investment in technology, learning and collaboration.

Let me say to all of our employees and those who might like to be, that John and I are deeply committed to ensuring that our agencies will be the very best place to work for those who strive on operating strategy, creativity, science and technology to deliver the best work. This extremely powerful and unique talent pool will allow us to best serve our clients, to help them achieve their goals with the strictest firewalls of confidentiality. We are also committed to creating the new industry standard for the quality of workplace we offer employees, one that encourages learning, collaboration and if I may say, fun, that quality of passionate engagement that comes from doing stimulating, meaningful work for great clients.

We are confident that through the strategies you see on Slide 6, this merger will put Publicis Omnicom on a path to accelerating growth. Individually, we have first class product offerings and the most awarded talent in the industry. Together, we will gain a deeper global footprint and tremendous opportunities to provide more services across our client bases, and to pursue more collaboration across our agency platforms and disciplines. We are bringing together 2 of the best performing businesses in the industry, each with strong track records of success. That said, we will be able to realize cost synergies as we grow, and we will also be able to use and to share services and best practices that build on our existing strategies to run our businesses quite cost-effectively.

Let's take a closer look at why our combination really addresses change in the industry and sets a new standard in communications services. In the last few years, we have seen media dollars shifting to new communications channel that didn't exist just 5 years ago. This phenomenon has given rise to new media giants that have expanded the communication channels available to our clients. At the same time, consumer preferences for consuming media and messages have evolved rapidly. New devices and technology platforms like smartphones and tablets are allowing consumers to turn to all types of electronic interfaces for entertainment and commerce. That means our clients need even faster, efficient and global solutions, and they need actionable insights in real-time from the vast amount of data that is now available. We believe that Publicis Omnicom Group is exceptionally well positioned to benefit from these trends in the marketplace. Both of our companies have created a deep understanding of consumer behavior, a broad digital offering and strong capabilities to service our clients. We believe that building on these existing strengths will lead to numerous growth opportunities and significant revenue streams. Our research capabilities gives us insights into consumer wants and needs that are amongst the best in the world. Our combined investment in technology will allow us to drive continuing innovation, as well as industry-leading training and development for our people. Similarly, we are excited about bringing even more innovative services to market as part of our digital offering, and we are committed to continuing to lead innovations in this mission-critical area.

Publicis Omnicom Group has a deep understanding of the digital landscape. Our existing partnership with technology leaders allow us to get the best results for our clients by having access to a trove of data that is used to generate real-time consumer insights. We will continue to broaden our work with new digital partners as the pace of technological innovation accelerates. Our combined strengths and capabilities will only come to fruition as we align our objectives and corporate cultures. Fortunately, Omnicom and Publicis are very similar in this respect. We have strongly shared attributes like client commitment, strong ethical guidelines, reward and recognize talent and abundant creativity. We share an enterprise-wide entrepreneurial spirit that is driven by a strong senior leadership team around the world. This corporate culture fit is a key component in the rationale for this merger. It will also be a key component of our long-term success as a combined entity.

Let me now turn the discussion back to John to talk about the benefits of combining our portfolio of agencies. John?

John D. Wren

Thanks, Maurice. Publicis Omnicom Group will bring together some of the strongest brands and agencies in the global industry into a single portfolio. Consider that we'll have 7 of the 15 most awarded agencies or networks in the world. Advertising powerhouses like BBDO, Leo Burnett, DDB, Publicis Worldwide, Saatchi & Saatchi, and TBWA. We will offer top-tier digital and CRM agencies like DigitasLBi, RAPP, Razorfish, Rosetta, Critical Mass, Proximity, VivaKi, and a group that includes 4 of the top 10 most awarded digital agencies. The portfolio includes 3 of the top 5 media networks, including OMD, StarcomMediaVest, PHD and the ZenithOptimedia group, as well as highly regarded PR agencies that will include Ketchum, MSLGROUP, [indiscernible], Fleishman-Hillard and Porter Novelli. The agencies I mentioned earlier are a small sample of our combined portfolio of agencies and networks, and we're excited about the contributions every one of our agencies will make to the new company. On Slide 13, you can clearly see that our combined strength extend to every important communication discipline in our industry. We're not only have a full complement of agencies across every key discipline, we have the best brands across every discipline. From brand advertising and media buying to CRM and shop and marketing, to branding and public relations, they're simply the best-in-class. I'm also pleased to say that our merged company will also be an outstanding resource for health care clients with the ability to provide a complete service offering across our joint portfolio. The fact is, there will be exceptional strength right across our service offerings. Even a quick look at the breadth of this agencies and disciplines suggest we will have outstanding opportunities to collaborate to better serve our clients.

Looking at the geographic benefit of the combination on Slide 14, keep in mind that both companies, individually, have a strong presence in key emerging markets. Together, we'll have much deeper coverage of the fast-growing developing markets in Latin America, the Middle East and Africa, as well as the Asia Pacific region. And our core markets in North America and Europe will also be strengthened through a broader range of services and brands. In sum, our combined group brings together the most talented teams in the industry and the world's largest portfolio of iconic brands. Together, we'll be able to serve our clients with exceptional collaboration and creativity across a full range of disciplines and geographies at scale. And we expect that powerful platforms will, in turn, drive continuing growth for clients and shareholders alike.

I'm now going to turn it over to Maurice who will take you through the financials of the combined companies.

Maurice Lévy

The merger of Omnicom and Publicis brings together 2 of the best-run companies in the industry, each with a great balance sheet, excellent record of success and prudent financial management. On Slide 16, you will see a snapshot of each of the company's key financial metrics in U.S. dollars, as well as a combined total base on 2012 full year information. Combined revenues for 2012 were almost USD 23 billion, generating just over USD 3 billion in operating income. Net income for the businesses in 2012 was about equal, resulting in combined net income of almost USD 2 billion. Moreover, the businesses generated strong free cash flow of USD 2.6 billion. The following slide provide the same key financials in euros, I'm not going through.

As was mentioned earlier, the companies have approximately equal market capitalizations. We show on Slide 18 that, on a combined basis and at current market prices, Publicis Omnicom would be ranked 121st in the S&P 500 and 13th in the CAC 40, significantly increasing the weighings in each of those indices.

As we have said, Omnicom and Publicis are the industry's strongest financial performers. We believe our combination will only improve on our strong record. And Slide 19 summarizes some of the financial benefits of the merger. We expect the transaction to create significant value for shareholders by accelerating revenue growth and operating efficiencies. From a revenue perspective, our combined portfolio of agencies and services, deeper geographic presence in all our market and shared investment and partnership will provide new opportunities for growth. And the companies' depths and breadths will provide a greater ability to achieve savings in areas such as third-party services. Each of our companies also has a great record of championing efficient operations.

The combination will allow the Publicis Omnicom Group to build upon these successes, as well as with our best-in-class practices in areas like shared services, production, procurement and support. In summary, the merger will form an even more diverse, stable company that should continue to provide strong returns to shareholders, thanks to accretive adjusted EPS.

John will now review the structure of the combined company.

John D. Wren

As has been made clear, the transaction has been structured as a true merger of equals. The equity split after special dividends of approximately 50-50 is designed to be tax-free for the U.S. and French shareholders. To be more specific, Omnicom shareholders will receive 0.813 shares of the new company and a special dividend of $2 a share. They will also receive up to 2 regular quarterly dividends, depending upon the closing date of the merger.

Publicis shareholders will receive 1 share of the new company and a special dividend of EUR 1 per share. Publicis and Omnicom will be incorporated as a holding company in the Netherlands, but will retain its operating headquarters in Paris and New York. We expect the stock to be listed on the New York Stock Exchange, as well as the Euronext Paris and will be traded under the ticker symbol, OMC.

We will establish a balanced governance structure consistent with the spirit of the transaction. Following the closing of the transaction, the newly formed company will be led by Maurice Lévy and I as co-CEOs during an initial integration and development period of 30 months. At that time, Maurice will become non-executive Chairman and I will continue as the company's CEO. The company will be led by a single-tier board of 16 members, consisting of the 2 co-CEOs and 7 non-executive directors from each company.

The overview of the company's capital structure on Slide 23 reflects the already strong balance sheet and excellent liquidity of each of our businesses. We expect to maintain prudent financial leverage with a keen focus on retaining our BBB+ rating. We also plan to combine the current credit facilities in place at both Omnicom and Publicis to ensure that we have the liquidity for the combined business going forward.

As I mentioned, Omnicom and Publicis expect to continue to pay their respective regular, quarterly and annual dividends prior to the closing. Given our excellent cash flow [indiscernible], we also expect the new company to continue to pay a solid quarterly dividend of around 35% of net income on a quarterly basis.

On Slide 26, we summarize the process to close the transaction. The merger is subject to the approval by the shareholders of both companies. Certain key shareholders of Omnicom and Publicis have already entered into agreements in support of the merger, and of course, regulatory approvals in numerous jurisdictions will also be required. Overall, we expect to finalize the transaction during the fourth quarter of 2013 or the first quarter of 2014. But of course, we can't speculate on the timing and receipt of regulatory approvals.

Now I'll hand it over to Maurice for the conclusion of our presentation.

Maurice Lévy

Before we end, I would like to reemphasize why we are confident this merger of equals will create tremendous opportunities for our clients, our people and our shareholders. Publicis Omnicom brings together the leading providers of virtually every advertising, marketing, digital and communications discipline under one roof. We have the most highly recognized and awarded talent in the industry. We have the ability to expand services across a shared client base. We have a strong ethical history augmenting firewalls. We have a deeper global footprint by geographies. And we have greater depth in digital, an increasingly important segment in our industry. All these factors will help our clients to succeed in a global market where media channels are converging and colliding, where new technologies are emerging constantly, and where attractive businesses are growing rapidly. Moreover, we have very similar corporate cultures and core values. We are focused on clients. We nurture talent. We share an innovative and entrepreneurial spirit, and we share a clear vision for the future of the industry.

As experienced CEOs, both John and I have determined to make this combination work for the benefit of our clients, our people and our shareholders. We place our pride in making it a success. In closing, this merger of equals in advertising, digital and marketing services create the new standard for our industry, putting Publicis Omnicom Group on a path for accelerated growth with greater capabilities and exceptional opportunities for our clients and employees. We thank you for your time and attention today, and for your interest in this historic creation of Publicis Omnicom Group.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Alexia Quadrani from JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

If you can give us a little bit of an idea of if you've had a chance to talk to some of the clients already. I know this has all happened very quickly, at least in the public eye. Any color on what potential conflict may exist, and if any, and the extent of some losses that could potentially follow, I guess, given these conversations?

John D. Wren

On the Omnicom side, we've spoken to all of our significant clients. By now -- by this morning, they -- I mean, people around the world will have picked up the balancism. There's nothing significant to speak of. For the most part, the ones I spoke to simply congratulated us. This transaction is going to take months to complete because of the approvals that we have to get. And they'll be -- when we take the heat of the announcement out of it, we'll sit down with our clients and explain to them in more detail as we know more information.

Maurice Lévy

From the Publicis side, we did exactly the same. I called, as well as our executives committee, all our major clients. The reaction has been extremely positive and congratulating us. And as John said, we will have time to look at the various issues and some aspects of organization. We don't anticipate any major hurdle or any major problem.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

And on the cost side, you've given some good detail in terms of where we can expect some savings. I guess, any color in terms of maybe the timing of what realistically we should look to in terms of when a lot of those savings can be realized?

John D. Wren

The savings can't really begin, Alexa, until after the transaction is complete. What our plan is, is during the period of time when we're going through in seeking approvals, to put the committees of informed executives together to study each area and determine exactly what we might be able to implement once we are joined.

Maurice Lévy

The approach we had was pretty conservative and we were looking at the key areas where we could generate more revenues on a regular basis and also where, thanks to the combination of our operation, we can get some important savings particularly coming from third parties.

Operator

The next question comes from David Bank from Morgan Stanley -- from RBC Capital.

David Bank - RBC Capital Markets, LLC, Research Division

I have 2 questions, I guess, the first is financial and the second is a little bit of a follow-up on the prior question. So if you look at the difference in your financials, GAAP versus IFRS, what are the primary differences? Are there any sort of big picture ones in your different reporting, accounting bases? How would those comps change in a big picture if you converged to either GAAP or IFRS? And also, by the same token, can you talk about what your new tax rate would be and how they would differ from the existing one? And the second bigger picture, kind of, follow up on the client question is, there is a perception, I think, that this kind of transaction would lead to conflicts that might cause you to lose some clients. Do you think has the world changed, did there used to be a far greater risk of that sort of thing and has the world changed and why has it changed, if that's the case?

John D. Wren

I might ask the CFOs to answer the first part of that question. Randy, do you want to start?

Randall J. Weisenburger

On the IFRS front, what we've looked at, there's not significant differences. There's some areas in pension accounting and in equity compensation accounting that looked different. It's not significant. There is a few line items in different geographies in the final IFRS reports versus the way we report it, but no significant differences. I think on the tax front, I think our blended rate is about 31%.

Jean-Michel Étienne

I want to add something on the differences between IFRS and U.S. GAAP. Thanks to a tentative conversion work, which has been handled through the professional bodies in order to get the same, one day, the same set of rules, we have eliminated already a few differences. So what Randy said is besides that, we will have a few pensions and so on differences, but we are not expecting big differences.

Randall J. Weisenburger

And neither of us have big pensions, so those numbers are not going to be meaningful.

Jean-Michel Étienne

Absolutely.

John D. Wren

And on your second question, conflicts. We're going to work extremely hard with our clients and their problems and try to come up with creative solutions. But at this point, if the deal is completed, there is -- I don't believe that a significant client -- no single client would be significant enough to disturb the deal.

Maurice Lévy

Yes, and when you look at the overlap between the 2 companies, on the want -- people conflicts -- and by the way, on conflict, I will come back in a minute, the overlap is very limited. So here, also, there is nothing which could derail the operation. Coming back to the idea of conflict, if you look at the industry, it has changed quite dramatically in the last 15 years. And all of the holding companies, as they are today, are already handling a lot of conflict. Without talking about ourselves, if you look at any of our competitor, as small as it can be, you will see that they're handling conflicts because this is the story of our life nowadays and there's a need for the clients to find the organization which are able to service them. And there is a limited number of players in the advertising field, that is the main reason. And consolidation is something which is working since a few years in that direction. So the conflict issue should not obstruct the view of what is going on, and all the extremely positive aspects of this combination.

Operator

The next question comes from the line of Ben Swinburne from Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I have 2 questions. First, around technology which is, obviously, something you guys talked about a lot during the slide presentation. One of the things I think that the investor community thinks is different about the 2 companies, historically, has been your approach to acquisitions, buying versus building or maybe better put, buying versus partnering. And John, you've been particularly clear on that the last couple of earnings calls. So I wonder if you guys could spend a minute maybe reconciling how the new company will think about technology, particularly on the M&A front. And then, I have a follow up.

John D. Wren

I think the 2 companies and the 2 strategies complement each other in many ways. And we had and have built a strong group of people within the company. Maurice has built and acquired strong groups of people as the president of Publicis. I think when we join those 2 together, we become incredibly powerful. And we'll, then, be in a position where we'll make decisions as we need to, buy some things, build some things, partner with some things. The needs are going to change because technologies are going to change every week as we move forward.

Maurice Lévy

Yes, there is not much to add to what John has said. We had 2 different strategies, and as one of the smallest player of the industry, we worked to the point where we had the choice between investing massively to increase our analog position or increase the digital option. And we decided that if we wanted to be prepared for the future we, as Publicis, we had to invest in digital, and this was much easier for us because we have not all the resources which are -- fanatastically exist already at the Omnicom group. So this makes a complementary operation where we need to make an inventory of what we have, how they are complementing each other, how we would be organizing. John mentioned the fact that we will have transition teams, committees who will be working on specifics. And one of these committees, obviously, will be working on digital. And they will propose to the governing committee how we will help to evolve in terms of strategy, where we will have to make some complementary acquisition, where we will invest in R&D because we will play a big comp on R&D and where we will be investing on new tools and new operation inside our group. So all this is something which will be extremely powerful for our clients because these combinations, and you have to understand that, if I may, is something which is really organized to best serve our clients and to bring to them, on a neutral basis, the information and the channels of communications, the need to reach their consumers wherever and whenever they are.

Benjamin Swinburne - Morgan Stanley, Research Division

And then, just a quick follow-up on the balance sheet payout points. Particularly, Omnicom side, a big part of the stock strength lately has been the continued return of capital trends. At a 35% payout, the company would be delevering. I'm wondering if you could comment on sort of leverage appetite for the combined entity and whether you expect to have a buyback plan, and how we might think about sort of total payout ratio on a go-forward basis?

John D. Wren

The new -- the company will have to get forms first. We will have to assemble the board and then, we'll have to ask the board its point of view. But right now if I had to depend on something, I think, we can depend on what we've said in the past, we'll meet and pay our dividends. If we find acquisitions that we want, that are complementary to the various strategies that we're trying to fulfill, we'll buy them. And then, with the balance of whatever our free cash flow is, we'll probably use it for the buyback or whatever, I don’t know.

Maurice Lévy

On our side, we have made clear that as we have reached a plateau, that we will be increasing our payout ratio and increase our dividends. And the 35% happens to be a common goal. We had already expressed this 35% since -- almost 2 years, Jean-Michel?

Jean-Michel Étienne

2 years.

Maurice Lévy

Yes, so we are absolutely on the same line. But obviously, when the company will be formed, as John said, we'll have to go to the board and to propose a new financial strategy. And the board will make its decision.

John D. Wren

Very positive of things is that each of the companies and the combined company generates a lot of free cash flow. And I think it's been our behavior to return much of that value to the shareholders as we possibly can.

Operator

Your next question comes from the line of Charles Bedouelle from Exane.

Charles Bedouelle - Exane BNP Paribas, Research Division

Some of the questions have already been answered. But I guess, one of the questions I had was, what's the feedback from the big digital Internet players to this deal, if you had any chance to speak with them? And what's their reaction, and what do you think it will change in your relationship with them?

John D. Wren

All I've gotten is love letters.

Maurice Lévy

And I got the same. I got numerous calls and e-mails coming from all the players. They have been all held, unfortunately, I had not been able to answer all the calls because we have been quite busy, I must say. I don't know why. This was a weekend which wasn't [indiscernible].

John D. Wren

It was a weekend.

Maurice Lévy

Which was not fishing. And it's just incredible how great the message were and positive about this combination. And see all a great value in the combination. Same kind of reaction as our clients. It's impressive to see, with the exception of some competitors, how clients and Internet players and media reacting to this operation. They all see the value, not only for the clients, the people and shareholders, but for the industry at large. They see this as the defining moment which will change the industry and which was badly needed because of the transformation of this industry, thanks to what the Internet has brought to the world.

Charles Bedouelle - Exane BNP Paribas, Research Division

Okay. Two very quick questions, a follow-up, if I may. The first one is just on this previous point. Do you think that it will accelerate the creation of a standard or standards in digital formats, notably, it's something you at Publicis have been talking for quite a while or the fact that the lack of standardization, whether you'd be holding back some of the spending? And the second question, just coming back on the dividend, and sorry if I misunderstood, but you said at Publicis that you had this 35% goal in the coming years. Should we understand from your comments that, actually, the payout at 35% will come more rapidly once the companies formed as a new standard or are we still expecting this to be a gradual goal over many years to be achieved?

Maurice Lévy

Okay. Is that for me? You can't see, but John was saying, "Okay, this place is for you." On the dividends, clearly, we will have only 1 ratio, and that ratio, if it is approved by the board, will be immediately 35% or around 35%. Will it be 32%, 33% or 36%, 37%, I don’t know, but the target is to be 35%. And our objective is to do it immediately as a combined company because there is a history of Omnicom and we cannot disappoint the shareholders of Omnicom. So we have to do what will please most of the shareholders, so we are aligning with this set rate of payout ratio. Regarding the standard in digital, what I can tell you is that we are working very hard, and currently, we have teams working directly with Facebook on new standards. And clearly, the fact that we are combining our forces and the fact that we are setting a new standard and the sheer size of the operation will give us a responsibility to help defining new standards with the Internet players for the benefit of the industry and for the benefit of all our clients.

Operator

The next question comes from Craig Huber from Huber Research Partners.

Craig Huber

A couple of questions please. Can you talk a little bit further in depth about this $500 million of synergies? And I also have a -- on Page 19 of your presentation, I guess, footnote 1 talks of a $400 million number, just want to reconcile that please, first. But can you give us some -- more of in-depth about how you expect to achieve the $500 million? It says here by year 5, I guess. And I've got some follow-ups, too.

Randall J. Weisenburger

Jean-Michel and I will try to go through it, Craig. First, we focused on, basically, all the lines in the cost structure for the third-party costs. And there are a number of savings opportunities. Things like health care and insurance programs, research, systems, procurement, we're both doing effectively the same things. And by doubling or almost doubling our volumes on either side, we see some pretty significant savings opportunities. It's obviously going to take us a little while to achieve those because frankly, we can't start now, we can start thinking about them and planning, but we can't really start until the acquisition comes together. We have a number of operations that we each invest in internally to build best-in-class services and platforms. And by combining those operations, I think we will be able to take a significant step forward and save a meaningful amount of money.

Jean-Michel Étienne

From my side, I will add, Randy, that we will have to look at the IT organization and the systems and going for 1 common platform and we think it will bring them significant savings. No problem with that here.

Randall J. Weisenburger

But these are large distributed organizations. It takes some time to do that integration. So we've pretty conservatively laid out that those costs or those savings or synergies would come over a 4- or 5-year period. Some of them, it's going to cost some money to achieve it, to consolidate IT systems, for example, as an investment upfront.

Craig Huber

Randy, is that -- but that $400 million number that is in footnote 1 on Page 19 or does that should be actually the $500 million of savings?

Randall J. Weisenburger

It's $500 million of annualized savings is what we have in the chart by year 5. And we think the cost to achieve it over that 5-year period is around $400 million. Those are obviously estimates. John pointed out we're planning to have integration teams by area come together and plan it out in a lot more detail.

Craig Huber

And if I could ask, on the client loss side, what are you assuming in terms of potential client losses as a percent of joint revenues. And I ask that in the context of this, over the many years that I've talked to industry executives, some have thought that if 2 of the top 4 holding companies in this industry merged, you might lose 8% to 10% of the combined revenues to client conflicts. Where do you think it will all shake out here, what have you guys planned on when putting this thing together?

Maurice Lévy

I will start and John will help me. We have been through many operations, mergers, acquisitions, in the last few years. And starting with Saatchi in 2000, Bcom3 in 2002 and on and on, and what you see that through all this period, we have not lost, at the time of the merger, 1 single large client, not 1 single large client. I had to say it and say it loud and clear. Sure, there are some competitors who would very much like to see us losing some accounts because they would be extremely happy to benefit from this. I don't believe that this is something which will be significant. I'm not saying that we will not have any issues. I'm sure that with the quality of our team, the quality of the work, the quality of the relationship we already have with all of our clients, we will overcome the small hiccups that we may have. And I'm absolutely certain that this will be a very good merger with very, very little revenue loss and a lot, a lot, a lot of revenue gain. John?

John D. Wren

Yes, I absolutely agree with Maurice. We're not unrealistic about this. But if we have losses, it'd be probably closer to 1% than what you suggested. Most big organizations -- we, as an industry, has been dealing with this. We in the industry have been addressing it for quite a while now because this is not new. And it's very difficult for a big client, not impossible, but for a big client and disruptive to their organization to make changes, arbitrary changes. So we are very creative in going back to clients. And clients eventually become very creative in joining with us. So you don't want to disrupt the whole company simply because of a feeling, especially since firewalls and other things are in place.

Craig Huber

My final, fourth, if I could. Why this merger now? What was the reason why it's happening now as opposed to several years ago please?

Maurice Lévy

Several years ago, I think that Omnicom and Publicis would not have been able to make a merger of equals.

John D. Wren

The stars aligned, is really what it comes down to. Stars aligned and it has made it quite possible to do. And even though...

Operator

The next question comes from Dan Salmon from BMO Capital Markets.

Daniel Salmon - BMO Capital Markets U.S.

Two quick questions. First, would you anticipate any divestitures to get regulatory approval? And then, second, in your -- both of your prepared remarks, a lot of focus on big data and technology and certainly, the enhanced scale of the new company in areas like media buying, immediately, it comes to mind, how that will be important there? But are there any other examples from around the company where that scale and particularly on data and technology that you'd particularly highlight?

John D. Wren

In terms of divestitures, I think the way -- any question about that, there's no significant divestitures to plan at the moment. We're listening to the regulatory bodies to the extent that they have any concerns. And then, I think, one of the committees that we'll set up is to go through the portfolio and to look, as we did 3 years ago, at each one of our subsidiaries. And here, we are talking about the smaller ones, and finding out whether or not they fit in the bigger picture. But I doubt that much would be produced out of that committee because of all the previous work done by both companies.

Maurice Lévy

Nothing to add.

John D. Wren

Okay. Is there a second part to your question?

Daniel Salmon - BMO Capital Markets U.S.

Yes, just around the importance of the combined entities, new scale around big data, sort of, beyond the media buying area.

Maurice Lévy

On the big data, it is clear that the big players have means and possibilities which are beyond what any of our individual operations can do. And this is, by itself, a very good reason to do the merger. It is not the main reason, there's a lot of compelling reasons, and the first and most important one is, obviously, what we can do for our clients. And if we want to be able to create a portfolio of data and the tools which can give a natural approach for our clients, and that they are not in the hands of any other player with interests which are not the main interest of our clients, we had to go through this consolidation. That is a very important point. Regarding media buying, clearly, this market is highly competitive. And we have seen in the past that you can have a relatively small player who can win against us and this market remains highly competitive. And we believe that the competition will remain fierce in this segment.

Operator

The next question comes from Filippo Lo Franco from JPMorgan.

Filippo Pietro Lo Franco - JP Morgan Chase & Co, Research Division

Obviously, my only disappointment here is that you did not pick up Italy as your headquarters for the new holding. So I have 2 more questions. The first one is really on, in terms of the CMO and the CIO opportunities. Is not one of the reasons for the merger the possibility to be stronger and face the challenge that is coming from nontraditional players for you, like IBM, Accenture and so on? So -- and the second question is on the -- if you have to pick up 1 major challenge for you guys, what do you think is the major challenge for this merger? And finally, I think that I heard you saying that you expect an improvement in the organic growth rate. I think that Maurice said a lot, a lot. So can we quantify what will be the additional organic growth rate that we may expect?

Maurice Lévy

Okay. I will start and John will continue. We have looked at Italy and the only place which could have worked well was already busy, which was the Vatican. But so we said -- it's not Italy. No seriously, learning Dutch was much easier than learning Italian. I wish that with the new government, you will be able to get more corporation and incorporated in Italy. To your questions, regarding the partnership with the IBM, the Adobe, the Salesforce and all the other players, I think that the new strength of the newly formed company, when it will be formed, is something which will be seen extremely positively by all the players. Because the need to partner with some strong players, we can make things happen, and this is something which will work extremely positively. On the challenges, there is no big challenges. We think that we -- with all our lawyers and bankers, we have worked very cautiously, thoughtfully, about all the issues and problems. We have made this, I think, very reasonable and all our assumptions are extremely, extremely reasonable. So we don't expect enormous challenges. And as I said, both John and myself, are experienced CEOs and we know how to overcome difficult situations. We have been through a lot of difficulties. When you look at our career, where we had to deal with a lot of crises. And this is only a good momentum for both of us and if there are some issues, we know that we will be able to manage these issues cautiously and reasonably. On organic growth, we believe that when you align all the resources of Omnicom, all the skills that they have been able to develop over time, all the new possibilities that our clients have no access to, these will automatically generate more growth. And the same is for Omnicom when they will look at the assets we have. So I feel quite confident. Now to put a number, as we are extremely serious, we are not going to put any number today. But clearly, at a point in time, we will be able to do that. John?

John D. Wren

I agree. And the expectation -- we'll go through it, and as -- when we get comfortable with it, it will be -- probably prior to the deal closing, we'll come out and share that with you.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a good day.

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