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 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 $1.5 billion
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 Omnicom
counterpart, John Wren.
"Omnicom wanted their people to fill the CEO, CFO and general
counsel jobs," he told Reuters. "I thought that went too far. I was
not ready to cede on this point."
For his part, 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, 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."
On a conference call with analysts and reporters on Friday, Wren
summed up the broken deal with a nod to Twitter: "If I had to
summarize in a tweet it would be, corporate culture, complexity and
time. And I would still have 100 characters left."
Two people familiar with the situation said relations between the
two sides began to unravel in December, with tensions simmering
between Levy and Wren, and the Frenchman believing 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 chief financial officer 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.
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.
Wren disputed that Omnicom lost clients because of the merger,
saying it was "absolutely not true."
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 pit
agencies owned by the two firms against each other.
Publicis shares were down almost 1 percent, while Britain's WPP was
flat. Omnicom was down 0.3 percent. Smaller French player Havas,
seen as a takeover target, jumped 3.4 percent.
"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 analysts also said further deals could crop up involving
perhaps fourth-largest agency Interpublic and Japanese advertising
group Dentsu.
SOAP OPERA
Sorrell told Reuters the failure of the deal had turned into a soap
opera.
"You now have the charade of them trying to say we're just as well
off apart as we were together, which begs the question of why spend
a couple of hundred million dollars to prove that being together
didn't work. It was ill thought through."
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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.
On Omnicom's part, executives said the company will reinstate a
share buyback program and seek to increase the dividend. They are
still looking for acquisitions, executives said.
"I think it'll be a very long time before we try to do a merger of
equals again," Wren said on the call.
Omnicom spent $50 million to $60 million on outside advisors for the
merger.
Publicis and Omnicom had justified the union as a way to provide
scale and capital to cope with technological forces reshaping the
industry.
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 late in
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, Sophie Sassard and Kate Holton in London, and Jennifer
Saba in New York.; Writing by Leila Abboud and Kate Holton; Editing
by Eric Walsh, Richard Chang, Ken Wills, Will Waterman and
Bernadette Baum)
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