The $35 Billion "Mad Men" Marriage
U.S. stocks lost ground on the eve of the Federal Reserve's two-day Federal Open Market Committee meeting. The S&P 500 and the narrower, price-weighted Dow Jones Industrial Average , retreated by 0.4% and 0.2% today.
Consistent with those losses, the CBOE Volatility Index (VIX) , Wall Street's "fear index," gained 5.3%, to close at 13.39. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
Despite today's increase, the index remains substantially below its historical average, which could simply indicate investors expect a slow August ... or it could be a sign of complacency. Whatever the case may be, some investors aren't taking any chances: In a Monday auction of short-term Treasury securities, the yield on three-month and six-month bills fell to their lowest level since January 2012.
"Mad Men" Merger Monday
Two of the top firms in the advertising industry, the U.S.'s Omnicom and Publicis of France announced they will be joining forces in a $35 billion "merger of equals." In doing so, they will become the largest ad firm in the world, overtaking WPP. That crown isn't without its privileges: According to The Economist, if the two merger partners can retain their clients, the resulting firm will control one-third of total ad spending on media outlets, and more than 40% in some countries.
But size isn't a panacea, as the 1986 merger of Saatchi & Saatchi (now part of Publicis) and Ted Bates shows. The deal created what was then the largest ad firm in the world, but it was followed by a decade of acrimony, which ended in a breakup.
The rationale behind this latest deal? Profit growth through margin improvement is often a driving factor behind most merger transactions (or one that chief executives cling to publicly, at any rate.) In a global environment characterized by below-par growth, the estimated $500 million in cost savings the two firms expect to achieve would certainly help boost profits (even if they fail to achieve the full estimate.)
However, the case for a "defensive" merger is perhaps even stronger. Omnicom and Publicis may be hoping that their combined heft will provide a greater counterweight against the rise of technology-driven platforms, particularly Google , which dominates digital ad buying with a whopping 30% market share (Facebook now has a 5% share.)
Advertizing is just one example of the way in which just a handful of digital juggernauts, including Google, are reshaping consumer habits and entire industries. If you want to find out "Who Will Win the War Between the 5 Biggest Tech Stocks" in The Motley Fool's latest free report -- which details the knock-down, drag-out battle being waged among the five kings of tech -- click here to keep reading.
The article The $35 Billion "Mad Men" Marriage originally appeared on Fool.com.
Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends and owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.