Omnicom calls off merger with Publicis

One of the biggest advertising mergers ever was called off on Thursday. Omnicom and Publicis said their $35 billion combination wasn’t going fast enough and they cited tax and other regulatory issues.

The Wall Street Journal had these details in a story by Dana Mattioli, Ruth Bender and Suzanne Vranica.

Advertising giants Omnicom Group Inc. and Publicis Groupe SA said they have called off their $35 billion merger, citing “difficulties in completing the transaction within a reasonable time frame.”

The deal billed as a “merger of equals” had been challenged by battles over position and power, including difficulties in getting tax and other regulatory approvals people familiar with the matter have said.

In a joint statement, Publicis Chairman Maurice Lévy and Omnicom CEO John Wren said the “challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups.”

The tie-up, announced with much fanfare in July and originally expected to close by the end of 2013, was designed to give the companies more heft in competing with deep-pocketed Silicon Valley giants like Google Inc., which have gotten a leg up on mining data about consumer habits.

The megamerger would have created the world’s largest ad holding company by revenue, combining ad agencies such as BBDO, Saatchi & Saatchi, DDB, Leo Burnett and TBWA as well as public-relations firms including FleishmanHillard and Ketchum, and digital ad agencies DigitasLBi and Razorfish.

The Reuters story by Anjuli Davies, Soyoung Kim and Jean-Michel Belot said it was more than regulatory issues that got in the way. Egos and cultural differences also made the merger fall apart.

The deal announced in July was called off over a number of sticking points including the companies’ failure to agree on a chief financial officer who would have taken charge of implementing the deal, a source close to Publicis said.

Neither company will pay a termination fee.

Another source familiar with the matter said broader cultural differences between the two companies proved to be too difficult to overcome as tension over leadership and strategy came to a head. The boards of the two companies met on Thursday to unwind the deal, a third source said.

All three sources requested anonymity because they are not authorized to discuss the matter publicly.

The merger 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.

One of the sources said that “big egos” were involved.

David Gelles wrote for the New York Times that Chinese regulatory approval along with control issues were at the heart of the deal falling apart:

One significant unresolved issue was which company would be acquiring the other one. After much persuasion, Publicis was prepared to allow Omnicom to be the acquirer, according to people briefed on the matter. But Publicis then balked at the notion that Omnicom’s management would retain control of both the chief executive and chief financial officer roles. Omnicom was pressing to have its finance chief, Randall J. Weisenburger, keep his role.

That would have made the deal essentially an Omnicom acquisition of Publicis. In addition, Publicis executives contended that their company had the stronger financial model and was better positioned to integrate the merged corporation’s finances.

Another holdup was the fact that China had not granted the deal regulatory approval. China’s antitrust regulator, known as Mofcom, is often the last global regulator to approve big mergers and acquisitions. But people close to the process said that had Mofcom not given its blessing within the next several weeks, the companies would have had to restart the global regulatory process, delaying the deal further.

Ed Hammond, Emily Steel and Adam Thomson reported in The Financial Times that the deal falling apart could cost $55 million to $60 million:

The failure of the Franco-US alliance marks one of the largest merger breakdowns in history and up-ends expectations for an advertising industry that had been seeking to consolidate in response to the turmoil huge companies like Google and Facebook have wrought on their traditional business.

Talk has swirled around the advertising world for weeks of frayed relations between Mr Lévy and Mr Wren, and their lieutenants. One person familiar with the matter confirmed there had been a “culture clash”.

A termination shatters the two companies’ vision for a next-generation advertising and communications company that could set a “new standard” for the industry. The collapse will also be a personal blow to executives at both companies, who closed the deal with champagne toasts by the Arc de Triomphe nine months ago.

Speaking from Omnicom’s headquarters in midtown Manhattan on Thursday night, John Wren declared that the advertising group would have a bright future on its own.

“We have stated from the very, very beginning that this was a proposed merger of opportunity, not necessity at any level,” the company’s chief executive told the Financial Times.

Mr Wren estimated that collapse of Omnicom’s proposed $35bn merger with Publicis would cost the company an estimated $55m to $60m before taxes.

That’s a lot of money to pay for egos and a poorly planned merger falling apart. While it’s hard to image an agency that large being nimble and cutting edge, but it would have created a behemoth to rival Google and Facebook’s move to capture advertising revenue.