Publicis to Buy Digitas for $1.3 Billion

Publicis Groupe is preparing to acquire Digitas in an all-cash deal worth $1.3 billion.

With the purchase, Publicis snatches up one of the few remaining large-scale standalone digital agencies. Digitas is also among a small handful of publicly traded digital marketing agencies; the top remaining public digital marketing firm in the U.S. is aQuantive, which offers technology as well as services.

Digitas will bring to Publicis an extensive Fortune 500 client base and relationships with top dog Web platforms including Yahoo, Google, MSN, Fox Interactive Media and AOL. Shared clients include Procter & Gamble, Heineken, Hewlett Packard, General Motors and AstraZeneca. Publicis chairman and CEO Maurice Levy said the combined company will have 85 to 90 percent of the AstraZeneca account.

Publicis will also leverage its global reach to expand Digitas’ internationally, and will absorb some of its considerable production burden.

“Global labor pools and automation [will allow us] to do things more efficiently,” said Digitas Chairman and CEO David Kenny on an investor call following the announcement. “This will allow us to invest more in creativity with clients.”

Publicis had pursued Digitas for a year, according to Levy. “We were missing not a link but a major step, and the major step is now happening,” he said on an investor call discussing the agreement. “This will enable Publicis Groupe to have the most comprehensive digital offering in the most important market, the U.S.” Earlier this year, Publicis acquired Atlanta-based digital agency Moxie Interactive.

Publicis continues to weigh its offerings toward digital media to a greater degree than competing agency holding companies. With the acquisition, the company says interactive revenues will account for 15 percent of its total billings. Earlier this year it launched Denuo, an all-star digital agency led by interactive luminaries Nick Pahade and Rishad Tobaccowala.

Digitas’s Kenny has committed to three years with the company post-acquisition. He said other senior managers have renewed contracts as well. Roughly 100 executives at Digitas had equity-based compensation.

Digitas specializes in digital and direct marketing, including brand strategy, online advertising, search marketing, e-mail marketing, CRM, and analytics. It also offers offline direct marketing via mail, television and print. The firm owns Modem Media, which it acquired in 2004, and Medical Broadcasting, an agency serving the healthcare vertical.

Should the deal close, Digitas stakeholders will receive $13.50 per share. The merger is likely to close in the first or second quarter of 2007.

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