Omnicom, Publicis call off proposed $35bn merger

May 10, 2014 - 12:05:57 am

LONDON/NEW YORK: The $35bn merger of US-based Omnicom and France’s Publicis collapsed yesterday after a battle for control destroyed plans to create the world’s largest advertising agency.

The deal, heralded in July as a merger of equals that would enable the two agencies to compete more effectively in the digital arena, foundered on issues ranging from its complex tax structure to the firms’ divergent cultures. The two sides were also losing major work — more than $1.5bn in the past month alone — and did not want to let the uncertainty continue. “I have not been able to convince John that balance is balance,” Publicis Chief Executive Maurice Levy said of his counterpart John Levy.

“Omnicom wanted their people to fill the CEO, CFO and general counsel jobs,” he said. “I thought that went too far. I was not ready to cede on this point.”

For his part, Omnicom CEO Wren said the two sides had failed to find a way past the strong corporate cultures that existed in each company.

“There was no one factor,” Wren, 61, said. “There are a lot of complex issues we haven’t resolved.  There are strong corporate cultures in both companies that delayed us for reaching an agreement. There was no clear finish line in sight, and uncertainty is never a good thing when you are in the personal service business.”

Two people familiar with the situation said relations between the two sides had started to unravel in December, with tensions starting to develop between Levy and Wren, and the Frenchman believing that the deal was turning into a takeover rather than a merger.

One person said the men met two weeks ago to agree what to do.

The key dispute over who should be CFO would have influenced whether the new company inclined towards a centralised structure to manage costs, which Publicis argues has driven its higher margins, or Omnicom’s more devolved approach.

Neither company will pay a termination fee, and they will split the costs of the failed deal, such as legal fees.

With the deal off the cards, analysts predicted a period of

turmoil ahead for the industry as Publicis and Omnicom seek to re-engage with clients after recent business losses.

One global consultant who advises clients on media spend told Reuters that agencies within Martin Sorrell’s WPP, which will keep its crown as the world’s largest advertising agency, had won a lot of work of late by cutting fees.

He advised existing clients of Publicis and Omnicom to use the uncertainty to negotiate better terms. He noted that some client work coming up for review in the coming months would also pitch agencies owned by the two firms against each other.

Reuters

comments powered by Disqus