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The Adler, Chomsky & Warshavsky advertising agency is negotiating to merge its subsidiary GPS with a competing ad agency, Ariely-Publicis. As far as could be ascertained, the transaction taking shape would merge GPS' operations into Ariely.

The international advertising agency Publicis owns 95% of Publicis-Ariely. If the deal comes off, Publicis would become a partner of Adler-Chomsky in the merged agency.

GPS, founded in 2003, is managed by Yossi Aroeti and David Berman. Last year it made the list of Israel's 20 biggest ad agencies with advertising accounts worth about $12.2 million, in real prices, based on the list prices of the Ifat Advertising Monitoring corporation).

The rival, Ariely-Publicis, achieved advertising accounts worth about $26 million in 2007, while Adler, Chomsky & Warshavsky reportedly scored $98 million last year.

About three weeks ago Eyal Chomsky, one of the owners of Adler, Chomsky & Warshavsky, flew to Paris for more talks with Publicis. Yossi Yarkoni, manager of the Ariely ad agency, also visited Publicis' headquarters in Paris last week, according to a source familiar with the situation.

A merger of Adler, Chomsky with Ariely-Publicis would make sense, given that Ariely's star has been waning in recent years, most recently being ranked 12th in Israel. Adler, Chomsky on the other hand has been rising fast, leaping from fourth to second among Israel's advertising agencies in 2007.

For years Publicis has been dissatisfied with the results of its arm in Israel, most notably from the weakening status of Ariely-Publicis. Maurice Levy, head of Publicis International, told TheMarker in an interview that the agency made the decision to develop its business in Israel several years ago, and to invest in the Israeli marketplace, both in good times and in bad. "I believe we need a presence in Israel through more advertising agencies that belong to us," he said.

This isn't the first time that Publicis has sought to expand its local presence. It had negotiated with Adler, Chomsky in the past, and with Bauman-Bar-Rivnai as well, these being the only two of the top five agencies in which the Paris-based company owns no shares. It entered representation agreements, but its talks in 2004 with Bauman-Bar-Rivnai, which Publicis had thought to buy and then merge with Ariely-Publicis, foundered.

Two months ago, Publicis began searching for a chairman for its Israeli arm, creating a new position in the local group. Again its aim had been to strengthen the local outfit's status, and to handle the acquisition of other Israeli agencies.

Industry sources think an Adler, Chomsky merger with Publicis is a real possibility, and that Publicis would mix in other Israeli companies in which it owns a stake, including Ideologic and Albustenai, which specializes in advertising in the Arabic-language sector.