IPG and Omnicom have both been cutting overheads and staff, anticipating how the jigsaw pieces of each business will fit together when they officially join later this year.
June quarter results for both global advertising groups show restructuring costs, including mounting severance pay.
The actual numbers of staff laid off hasn’t been revealed. But the accounts of both holdcos show accelerated activity when it come to shedding costs.
Omnicom, which will emerge as the world’s biggest advertising group after swallowing IPG, revealed $66 million of costs related to the acquisition.
And the company spent $88.8 million on “repositioning,” including “severance actions” related to efficiency initiatives, mainly within the advertising and production groups.
Over at IPG, after-tax expenses for restructuring totalled $88.4 million. Full year restructuring costs were expected to be $375 million to $400 million.
The depth of cost cutting and staff shedding is indicated by the cost line of salaries and related expenses, which fell 11.5% to $1.38 billion, mainly driven by lower base salaries, benefits and tax, as well as lower bonuses.
IPG reported a negative organic growth number, - 3.5%, for the June quarter and saw more of the same for the full year, between -1% and -2%.
Omnicom reported organic revenue growth of 3% for the June quarter and forecasts a full year outlook at 2.5% to 4.5%.
However, Omnicom’s profit fell hard. The company reported a 21.5% fall to $US257.6 million in net income for the June quarter as costs increased from the IPG takeover and from cutting employee numbers.
The fall in staff costs doesn’t appear as sharp as that of IPG. However, Omnicom’s staff and related costs as a percentage of revenue has dropped in the year to day to 46.8% from almost 50%. And in the June quarter it fell further, to 45.5%.
Both companies are upbeat about the coming takeover and creation of a combined entity.
They initially expected savings or $750 million but now hint this number will be higher.
Omnicom absorbing IPG will create the world's biggest advertising player with 100,000 people and revenue of $25.6 billion (net revenue of $20 billion).
“We believe that the significant changes we've already made in the business, combined with a very strong strategic fit with the capabilities and geographies at Omnicom, means that our resulting offerings will be significantly strengthened on the other side of the acquisition,” IPG CEO Philippe Krakowsky told analysts in a call to explain June quarter results.
“During the quarter, we continued to demonstrate significant progress in greater functional centralization, leveraging our enterprise-level focus on tech-driven platform benefits in key areas, including client-facing capabilities such as production and analytics, as well as corporate functions such as IT, finance, and HR management.
“As is clear in our report today, these initiatives have traction across the organisation, and we expect to exceed our initial objectives for enterprise redesign, client service delivery enhancements, and ongoing operating efficiencies. Charges for restructuring in the quarter were $118 million.”
IPG’s focus is to make the company as strong as possible for when it becomes a merged organisation.
“And we're clearly making good on that goal,” said Krakowsky.
He said the deal was “solidly” on track to be completed in the second half of the year.
“The level of interest and support from clients continues to be extremely strong, and there's eagerness on the part of practitioners across both organisations to unlock the value that the combination will create,” he said.
“By bringing together our deep pools of talent, and our complementary capabilities, geographic strength, and platform assets, what we know will result is an organisation with unmatched ability to deliver business outcomes for marketers in every industry sector around the world.
“Together, we'll be creating a company that can drive growth for clients with the most comprehensive and powerful range of marketing and sales solutions that incorporate creativity, data, and technology.”
Over at Omnicom, the company has been about driving “continued efficiency initiatives” and changes in the global employee “mix”.
Omnicom analysts are continuing to identify synergies to achieve the $750 million run rate target following the closing.
“We are highly confident that we will achieve this level of synergies, and we continue to identify further opportunities beyond our target as we move forward with the evaluation,” Omnicom CEO John Wren told analysts.
“We've also taken steps to align our existing portfolio, ensuring that we can immediately deliver the benefits of the combined company to our clients, particularly in relation to our operating platform strategy.
“Omnicom and IPG have dedicated teams at both corporate levels, working closely with our merger consultants, leading the process to ensure a seamless and successful closing.”
“Contrary to the early speculation that the transaction might distract our professional staff, our agencies remain fully focused on delivering exceptional service to our clients and securing new business.”
Omnicom has also reorganised its data and technology assets -- Omni, Omni AI, ArtBot and the Flywheel Commerce Cloud -- into an end-to-end platform organisation.
With the acquisition of IPG, the platform will add KINESSO and Acxiom as well as Real ID, the customer identity solution.
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