Global ad market abuzz over $35bn new giant

The global advertising market began their week with news of the creation of the world's biggest firm in the sector, after Publicis and Omnicom announced at the weekend they were joining forces to form a group, overtaking global leader WPP.

The global advertising market began their week with news of the creation of the world's biggest firm in the sector, after France's Publicis and U.S.-based Omnicom announced at the weekend they were joining forces to form a group worth $35.1 billion, overtaking global leader WPP.

Even as markets digest the sheer boldness of the deal, which is expected generate $500 million in savings, analysts are questioning the complications the merger could face.

Potential issues include how the firm will cope with its bases split between continents, whether the two cultures can be combined effectively and potential conflicts of interest in terms of representing competing clients.

(Read more: Omnicom to merge with France's Publicis, creating world's biggest advertising agency )

London's WPP CEO Martin Sorrell told CNBC that combining two different cultures could pose a challenge.

"It's an extremely bold, brave and surprising move," Sorrell told CNBC.

"Time will tell if the cultures will click and whether clients and talent benefit - and how $500 million of synergies will be generated without job cuts. Co-CEOs is not an easy structure," he added.

(Read more: Publicis CEO: Digital, US rebound driving revenues )

The merger will create a new global advertising powerhouse that analysts have said will reshape the dynamics of the advertising industry.

Publicis's 71-year old CEO Maurice Levy and Omnicom's 60-year old CEO John Wren will run the merged group together for the first two-and-a-half years, after which Wren will take the reins.

Mike Amour, CEO of Asia Pacific at advertising network Project Worldwide, also alluded to challenges combining the two firms' cultures.

"It's true, time will tell as to how effectively they will integrate and whether it adds shareholder value," he said. "It's a very big challenge for both organizations," he added.

The firms will now collectively represent competing brands, including Coca-Cola and Pepsi, MacDonald's and Taco Bell, raising some concerns over whether clients will be happy with the firm also looking after their competition.

But Amour said the merged firm could tackle this concern by being open and transparent with its clients.

"As long as the agencies are transparent and are upfront with their clients about potential conflict [the issue can be avoided]. This is not the first time this has happened in regards to clients from similar categories sitting under the same agency," he said.

Changing with the times

The global advertising industry has been undergoing a rapid transformation in recent times with the rise of digital marketing. Major ad agencies have been snapping up digital marketing companies in emerging markets in recent years in a bid to compete.

Amour said the newly merged firm Publicis Omnicom Group will now be better able to compete with global giant WPP, especially in terms of pursuing business in India and China.

(Read more: 'Hand-to-hand combat' in advertising market: WPP CEO )

"It's a very bold move in regards to the very fast developing economies such as India and China. WPP has made strong inroads there over the past 20 years, Omnicom and Publicis have been slower in that regard, so this will accelerate their ambitions in these geographies," added Amour.

WPP's Sorrell said consolidation in the advertising industry was "inevitable," at this time.

"Further consolidation in our industry was inevitable as we have said on many occasions," he said. "An equilibrium may be starting to be established, which will generate further significant opportunities for WPP organically."

(Read more: This region is the world's fastest growing advertising market )

Publicis Omnicom Group is set to spend around $100 billion a year, equivalent to 20 percent of the global media business, Reuters reported, which means it could be subject to scrutiny from antitrust regulators.

The deal is expected to be closed in the final quarter of this year, or the first quarter of 2014.

-By CNBC's Katie Holliday; Follow her on Twitter @hollidaykatie

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image: © Matthew Hine

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