French advertising group Publicis Groupe SA (PUBGY) is to buy Sapient (SAPE) for $3.7 billion, in a move that will take it into new business areas and give it the foothold in the U.S. that it had sought in its failed plan to merge with Omnicom Inc. (OMC)
Sapient, which gets over half of its sales from the U.S. digital ad market, will boost Publicis’ presence in areas of the ad market where it is relatively weak.
Maurice Levy, Publicis’ chairman and chief executive, said it will allow the group to reach its target of getting half its revenue through digital three years ahead of schedule.
Publicis is paying a sharp premium to Sapient’s market value to get its hands on the company. The price of $25 is 40% above the all-time high of $17.75 hit over 10 years ago, and some 60% above the level it has been trading at for the last two months.
In a statement, Publicis said it expected the deal to add to earnings per share but didn’t say how long that would take. It said it would lower annual costs by as much as €50 million, as well as creating “substantial opportunities” for Sapient’s team to create new avenues of growth for Publicis’ existing business.
Publicis will keep Sapient’s current management board in place, with Alan J. Herrick continuing to lead it, while Sapient founder Jerry A. Greenberg will join the combined company’s supervisory board.
Investors’ first impressions were that the French group had overpaid. They drove Publicis’ stock down by 5.7% in early trading in Paris Monday.
However, the Paris-based company’s traditional business has been struggling this year with chronic stagnation in the French economy and pressure on pricing across the Eurozone. Organic revenue fell 0.3% in the year in Europe in the first half, while growth in the world’s largest emerging markets also slowed to only 0.4%.