|
 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
clients - more than $1.5 billion in the past month alone - and did
not want to let the uncertainty continue.
"There was no one factor," Omnicom Chief Executive John Wren, 61,
told Reuters.
"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."
Publicis CEO Maurice Levy said a power struggle between the
partners, including over who would serve as chief financial officer,
also played a role in the breakdown.
"I was very attached to the concept of equality and was not ready to
cede on this point," said Levy on Monday.
"Omnicom wanted their people to fill the CEO, CFO and general
counsel jobs. I thought that went too far. I thought Publicis needed
to fill the CFO job to preserve the equilibrium and ensure that our
business model continued."
The choice of CFO would have influenced whether the new company
inclined towards a centralized structure to manage costs, which
Publicis argues has driven its higher margins, or Omnicom's more
devolved approach to subsidiaries.
Neither company will pay a termination fee and they will split the
costs of the failed deal, such as legal fees.
Publicis shares were up 1.25 pct, reflecting relief that the
uncertainty was in the past and an acrimonious marriage was avoided.
Shares in Britain's WPP, which will keep its crown as the world's
largest agency now that its rivals are staying independent, were up
1 percent. Smaller French player Havas, seen as a takeover target,
jumped 3.4 percent.
Analysts predicted a period of turmoil ahead for the industry as
Publicis and Omnicom seek to re-engage with clients after recent
business losses.
"We see the consequences for the agency space as negative as,
shorter-term, it is likely to lead to a more competitive environment
and, longer-term, it dashes the hopes that the merger would lead to
an easing of pressures in staff costs and client fees," wrote
Liberum analyst Ian Whittaker.
Some also said further deals could crop up, with fourth-largest
agency Interpublic also tipped as a target.
Although Levy still believes Publicis should be bigger to cope with
the way technology is changing the ad business, he demurred on
whether the group needed a big acquisition.
"For now, our goal is simple - to accelerate our strategic plan," he
said.
Publicis and Omnicom had justified the marriage as a way to provide
scale and capital to cope with technological forces reshaping the
industry.
[to top of second column] |
Wren and Levy, who toasted the tie-up with champagne in Paris last
summer, had said it would enable them to better compete with the
likes of Google Inc and Facebook Inc, which dominate digital
advertising, an area that accounts for nearly a quarter of global
marketing spending.
The planned merger had called for a 50-50 ownership split of the
equity in the new company, Publicis Omnicom Group, with Wren and
Levy serving as co-CEOs for 30 months from the closing.
Signs of trouble between Omnicom and Publicis appeared in late April
when Wren disclosed hurdles to getting the deal's tax structure
approved by regulators in Europe. He ominously said he could not
predict when the deal would close and said there was "no Plan B" if
the tax issues were not resolved.
Soon after, media outlets reported that the fight over the
leadership of the future group had frayed relations between the two
sides. One person on the French side said Omnicom appeared less
willing to compromise in recent weeks than Publicis, which was
trying to save the deal.
Levy had previously postponed retirement plans as succession at
Publicis remained an open issue prior to the deal. Those questions
are likely to come to the fore again.
Brian Wieser, a senior analyst at Pivotal Research, said that though
the potential merger was handled badly, there was still pressure on
ad agencies to strike deals as they were squeezed by clients looking
to cut costs.
"M&A and consolidation is still on the table, but now there are more
potential flavors," he said.
He said Publicis was still a more likely a buyer than a seller, and
Interpublic a more likely seller.
"The question is not whether or not there will be bids, but at what
price Interpublic would sell, especially considering it should have
a strong year on an operating basis."
(Additional reporting by Jean-Michel Belot in Paris, Aman Shah in
Bangalore, Jennifer Saba in New York, and Sophie Sassard in London;
Editing by Eric Walsh, Richard Chang, Ken Wills and Will Waterman)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
