Merger Arb Update (Omnicom/Interpublic)

Recent/upcoming developments… The merger’s 30-day HSR waiting period is set to expire on February 6.

Our outlook… We expect the companies will receive a second request this week unless they pull and refile their HSR
filing. However, we believe a decision to issue a second request would be driven more by political considerations
than substantive antitrust issues. If the political pressure on DOJ or FTC to issue a second request is overstated,
there is a material possibility that the companies could avoid a second request. Although the deal combines two of
the world’s largest players in the advertising and media buying services markets, industry participants (who are not
involved in the deal) uniformly believe the transaction will not cause substantial harm to competition. Large
advertisers, including multinational accounts, appear to have at least five options for media buying and advertising
services, post-merger. Such feedback is consistent with the EC’s findings in 2014 when it approved the later
abandoned Omnicom/Publicis deal. That deal was also cleared by the DOJ without a second request. However, on
balance we believe there are political concerns that likely tip this deal into a second request as Omnicom and
Interpublic were founding members of an organization that is perceived by some Republicans as a means to censor
conservative media outlets.

* Our research on this deal so far suggests that the competitive conditions in the advertising and media
buying services (MBS) market have not changed significantly in the 11 years since the Omnicom/Public deal
was cleared by U.S. and European antitrust authorities. Like Omnicom/Interpublic, Omnicom/Publicis
combines two of the four largest players in the advertising and MBS markets. According to some reports, it
appears that Publicis was a larger player than Interpublic with respect to the European and U.S. markets.
Nonetheless, in that case the EC concluded that the combined company would still be constrained by
several large competitors, including the other members of what is often referred to as the “Big 6”, which is
comprised of WPP, Publicis, Omnicom, Interpublic, Dentsu, and Havas, all of whom were viewed as capable
of servicing large advertisers with global reach.

* An Omnicom/Interpublic combination on the whole appears comparable or perhaps even less troubling in
some respects from an antitrust perspective than Omnicom/Publicis, particularly with respect to advertising
services. Industry participants have advised us that large advertisers, including global accounts, leverage
competition from at least the Big 6 when their advertising contracts come up for renewal. We have learned
that in recent years large consultancies like Accenture and Deloitte have also competed for contracts put
out for bid by large advertisers. And occasionally some agencies (i.e., “independents”) outside of the Big 6
compete for large advertisers as well. Although Dentsu and Havas have fallen behind the other members of
the Big 6 in terms of market share in the U.S. and Europe, large advertisers still consider and leverage
competition from those players to extract better bids from WPP, Publicis, Omnicom, and Interpublic. As
such, at worst this deal appears to be a 6-5 for large advertisers with respect to advertising services.

* The MBS market may be relatively more concentrated, and the combined company may have a
presumptively harmful 30% + share of this space. Large advertisers generally prefer to utilize the services of
large-scale MBS vendors. Given the size and breadth of their clients, the Big 6 tend to command more
favorable pricing than smaller players for purchases of time or space from TV broadcasters, publishing
houses, internet platforms, radio stations, and other mediums. The Big 6 make fundamentally more “buys”
than their smaller counterparts and have a larger and broader geographic presence. In recent years, some of the Big 6 like Publicis have developed AI-tools to assist with media buying, which is proving to be increasingly attractive to large advertisers that are looking for more efficient ways to purchase ad inventory
in diverse geographies and mediums. Havas and Dentsu have apparently fallen behind their Big 6
counterparts in terms of technology, capabilities and scale. In this regard, we should note that one report
estimated that Havas had a 3% share of MBS revenue generated by the Big 6 in North America, while
Publicis, WPP, Omnicom, Interpublic, and Dentsu had shares of 25%, 21%, 20%, 18%, and 14%, respectively.
However, industry participants (who are not involved in the deal) inform us that large advertisers still
consider and leverage competition from Havas when selecting an MBS vendor. It should also be noted that
most large advertisers apparently use the Big 6 as a “one-stop shop” for a range of services, including both
advertising and MBS services.

* We have also examined whether Interpublic and Omnicom are closer competitors in certain sub-segments
of the market and whether customers view them as closer substitutes than other firms. Omnicom and
Interpublic apparently have a large share of the healthcare advertising services market. One industry
participant speculated the combined company would have a 40% + share of this segment. Interpublic
advertising agencies like McCann have long been considered leaders in this segment, which includes
advertising services for pharmaceutical and medical device conglomerates like JNJ. However, each of the
Big 6 are considered to have strong capabilities in this market and are all apparently the recipient of an RFP
when contracts are put out for bid. As such, it appears likely that the antitrust agencies reviewing the deal
will ultimately conclude the combined company will be sufficiently constrained by other competitors.
* Given this preliminary feedback, a second request is not a foregone conclusion. The FTC is likely to have
jurisdiction over this deal given that it reportedly reviewed Omnicom/Publicis. With new leadership coming
into place, there is a chance the companies could get the FTC comfortable with the deal and avoid a
second. It may be also be worth noting that Omnicom/Publicis was cleared without a second request by the
FTC at a time when U.S. agencies had significantly stepped up enforcement efforts under the Obama
administration.

* However, we believe a second request investigation is still likely. We suspect that either the DOJ or FTC
will want to more closely examine how a large-scale deal in the advertising sector will impact competition
even though on the surface there appears to be significant post-merger competition. Moreover, there may
be concerns with how this deal could potentially impact conservative media outlets. The merging firms
were founding members of the Global Alliance for Responsible Media (GARM). GARM had allegedly
organized a boycott of Twitter following its acquisition by Elon Musk and had accused Joe Rogan’s podcast
platform of spreading misinformation. GARM has also been accused of developing a ratings system to drive
more advertising dollars towards left-leaning media outlets. In December 2024, the House Judiciary
Committee Chairman, Jim Jordan (R-OH), published a letter to Omnicom’s CEO requesting information on
GARM. Jordan also stated that he believed GARM was a byproduct of anticompetitive collusion and
asserted that the deal would increase the likelihood of coordinated effects. Notably, in early-December
2024, FTC commissioner (and now Chair) Andrew Ferguson published a statement in support of enforcement action against online retailer, GOAT. Ferguson’s statement also raised concerns about GARM and advertising boycotts, suggesting they may be evidence of Sherman Act violations. While we are
skeptical of these claims, such concerns may precipitate a decision to issue a second request, even though
the antitrust concerns implicated by Omnicom/Interpublic appear limited.

Watch for these developments… Further attention in the press or on X drawing attention to the notion that the
Omnicom/Interpublic merger could be a means to recreate GARM and/or censor conservative voices in the media.
If this deal should catch the attention of Musk or Trump, further pressure could be inserted on the DOJ or FTC to
find an antitrust pretext to block the deal despite the lack of substantive antitrust issues raised by the merger.