Publicis to Sell Health Unit That's Held Back Sales Gains
(Bloomberg) -- Advertising company Publicis Groupe SA plans to sell its volatile business that manages drug sales representatives, helping it shift resources into digital marketing and fend off a growing competitive threat from tech companies and consulting firms.
The thinly-profitable business has been dragging down the French company’s sales growth, prompting Chief Executive Officer Arthur Sadoun to sell what he sees as a legacy, “non-core” asset.
Publicis shares rose as much as 5.4 percent on Thursday, paring their decline in the past year to 12 percent.
Publicis said the health business was “highly volatile and developments in the healthcare sector have led clients to make last-minute adjustments, including the postponement or even the cancellation of campaigns.”
Sadoun is selling peripheral activities and cutting costs to funnel the proceeds into hiring and training workers to meet the challenge from digital players, a strategy his rivals are also pursuing.
WPP Plc has been selling minority stakes acquired by its founder and recently departed CEO Martin Sorrell. Omnicom Group Inc. has been cutting thousands of jobs by selling assets and reorganising its remaining operations.
Various potential buyers have expressed interest in Publicis Health Services, none of which are traditional competitors, company executives told reporters. The business is set to generate about 250 million euros ($288 million) in revenue this year, 90 percent of that from the U.S. and the rest from the U.K.
“It’s always difficult to divest some assets but it’s a decision that imposed itself very quickly, so that’s why we’re so advanced in the process today,” Sadoun said, referring to the disposal process.
Publicis announced the sale along with third-quarter results. Organic revenue, stripping out the impact of deals and currency swings, rose 1.3 percent, missing the 1.5 percent median of five analysts’ estimates compiled by Bloomberg. Excluding the health business, organic revenue rose 2.2 percent.
Growth was “not only significantly better sequentially but also comfortably ahead of underlying expectations,” said analysts at Citi.
Sadoun notched up some victories in the quarter, securing accounts from companies including Cathay Pacific Airways Ltd., Western Union Co. and Nestle SA. The winning streak continued this month, with Publicis grabbing a big assignment from drugmaker GlaxoSmithKline Plc that WPP and Omnicom had previously split.
The ad industry, facing client questions for years over media buying practices, is coming under fresh scrutiny after the Wall Street Journal reported last month that the U.S. Department of Justice opened a new probe. Sadoun declined to comment to reporters on the matter, which Morgan Stanley analysts last week said could drag on Publicis’ shares given the company’s sizeable U.S. business.
Omnicom rallied on Tuesday after saying it saw a rebound in the embattled U.S. market; WPP is scheduled to report third-quarter sales on Oct. 25.
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