Publicis Groupe SA (EPA: PUB) and Omnicom Group Inc. (NYSE: OMC) agreed to merge in an all-stock transaction to create the world’s largest advertising company with $23 billion in revenue, toppling market leader WPP plc.

Shareholders of Paris-based Publicis and New York-based Omnicom will each hold about 50 percent of the new entity, Publicis Omnicom Group. Publicis chief executive Maurice Levy and John Wren, his counterpart at Omnicom, will be co-CEOs as they unveiled the agreement at a press conference in Paris yesterday. Pending regulatory and stockholder approvals, the creation of an industry powerhouse with $35 billion in market value is expected to be completed by the first quarter of 2014.

The alliance will bring under one roof agencies including Omnicom’s BBDO Worldwide and Publicis’s Leo Burnett and Saatchi & Saatchi, extending their presence in every major market. The merger will also give the owners more clout to negotiate for their clients better ad rates for media placements on television, the Internet and in print, as the global advertising industry has started to show signs of a recovery.

“We share a culture focused on our clients,” Levy, 71, said on the seventh floor of Publicis’s headquarters. Wren, who is 10 years younger, said: “This is done with the clear intention that we will create value.”

Biggest Deal

The new holding company will be based in the Netherlands, while the operating offices will remain in Paris and New York. Publicis and Omnicom project efficiencies valued at about $500 million from the combination.

Bloomberg reported July 26 that the companies were in late-stage talks about a merger. The transaction is the biggest in the ad world. A year ago, Japan’s Dentsu Inc. (4324) agreed to take over Aegis Group Plc for about $4.9 billion.

Publicis jumped as much as 6.6 percent and traded 6.2 percent higher at 63.05 euros as of 3:41 p.m. in Paris, valuing the company at 13.3 billion euros ($17.6 billion). Omnicom added 7.3 percent to $69.84 in New York for a market value of $18 billion. Before today, the stocks have each gained about 30 percent this year.

Publicis, Omnicom and London-based WPP, led by Martin Sorrell, have grown through consolidation over decades as they vie with each other for accounts. Global ad spending will probably rise 5.1 percent next year, accelerating from 3.5 percent in 2013, according to ZenithOptimedia, a researcher that’s part of Publicis. Growth may reach 5.8 percent in 2015, ZenithOptimedia said.

PepsiCo, Coca-Cola

Publicis, the third-largest advertising firm, brings a large portfolio of digital assets including Digitas, LBi International and Razorfish, a client roster including Bank of America Corp., Coca-Cola Co. and BMW AG, as well as agencies in emerging markets.

The strength of Omnicom, ranked second and whose customers include PepsiCo Inc. (PEP), Nissan Motor Co. (7201) and Royal Philips Electronics NV, lies in its U.S. business. Accounts that overlap include McDonald’s Corp. and Procter & Gamble Co. (PG)

The two ad companies plan to cooperate to get the most out of adjacent contracts with the same customers, said Wren.

Still, the proposed combination may attract regulatory scrutiny in Europe and the U.S., given the companies’ overlap and potential market share. Taken together, they spent $3.34 billion in media placements for clients last year, according to data compiled by Advertising Age. That would have accounted for 41 percent of total spending by the top 10 media agencies in the world. WPP, by contrast, made up 32 percent at $2.6 billion.

‘Surprising Move’

“This may be one deal too many,” said Allen Grunes, an antitrust lawyer with GeyerGorey LLP in Washington. “Ad agencies have consolidated like crazy over the past 10 to 15 years. There has to be a point at which that is going to be stopped.”

Both CEOs said at the press conference that they don’t expect major regulatory hurdles.

“It’s an extremely bold, brave and surprising move,” WPP CEO Sorrell said in an e-mail. “Time will tell if the cultures will click and whether clients and talent benefit -- and how $500 million of synergies will be generated without job cuts.”

Publicis shareholders will receive one share in Publicis Omnicom for each stock they hold, plus a one-time dividend of 1 euro per share. Omnicom investors get 0.813 of the new stock for every existing share, and a $2 dividend.

Chairmanship Rotation

For the first year following the deal’s completion, Omnicom Chairman Bruce Crawford will be chairman of Publicis Omnicom. He will be succeeded by Publicis’s Elisabeth Badinter in the second year. Levy will become chairman after an integration and development period of 30 months.

Levy has spurred growth by acquiring digital advertisers as well as companies in emerging markets such as China. He assumed the CEO role in 1975 from founder Marcel Bleustein-Blanchet, who took Publicis public in 1970. Levy has discussed stepping down in recent years, saying in April after presenting a five-year plan that he was pushing for it. The supervisory board “doesn’t feel the same kind of urgency that I do,” Levy said in April this year.

Wren helped found Omnicom in 1986. The company is active in more than 100 countries and generated more than $14 billion in revenue last year through ad outlets including BBDO.

Agency Networks

Holding companies such as Omnicom and Publicis create networks of agencies and PR firms within the larger group. They’re designed to work independently from one another so that competing clients are placed in separate networks to avoid conflict.

Besides BBDO, Omnicom’s networks include TBWA Worldwide and DDB Worldwide Communications Group. Publicis also owns Publicis Worldwide, and DigitasLBi besides Leo Burnett Worldwide.

Over the past decade, ad companies had to rethink how they do business and acquire skills to address the Internet and mobile platforms. They are up against cash-rich and technology-savvy companies like Google Inc. and Facebook Inc. -- experts at crunching huge amounts of data to serve tailored ads to niche consumers.

“It’s a deal that makes two people happy and 130,000 and a whole bunch of clients destabilized and concerned,” said David Jones, CEO of rival Havas SA. (HAV) “Clients today want us to be faster, more agile, more nimble and more entrepreneurial not bigger and more bureaucratic and more complex.”

Franco-American Deals

Rothschild advised Publicis on the transaction, while Moelis & Co. is financial adviser to Omnicom.

Previous Franco-American mergers have had a mixed track record.

Sanofi’s $20 billion takeover of Genzyme Corp. in 2011 gave the French drugmaker a platform to replenish its pipeline of treatments and a vehicle to do more deals in the U.S.

The 2006 merger of Alcatel SA and Lucent Technologies didn’t fare well. Years of restructuring and efforts to stem losses failed as Asian competition in the network-equipment industry intensified. Alcatel paid $11.6 billion to buy Lucent. Today, Alcatel-Lucent SA’s market value is about $4.9 billion.

In 2000, Vivendi SA (VIV) bought Canada’s Seagram Co. to get its hands on Universal Studios Inc. Vivendi has since sold parts of the asset and is undergoing a strategy review to turn its focus from telecommunications back to media.

Informal discussions about a Publicis-Omnicom merger started about six months ago, with the idea coming from Levy, Wren said yesterday.

“This started out as a joke, but the more we looked at the idea the less we thought it was stupid,” Levy said.