$35bn Publicis-Omnicom ad deal unravels
The $35bn merger of Publicis and Omnicom has collapsed, according to people familiar with the matter, after the deal to create the world’s largest advertising company by revenues became mired in management infighting, regulatory trouble and tax issues.
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.
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. Talk has swirled around the advertising world for weeks of frayed relations between Maurice Lévy and John Wren, the chief executives of Publicis and Omnicom respectively, and their lieutenants.
A termination will shatter the two companies’ vision for a next-generation advertising and communications company that could set a “new standard” for the industry. A Publicis-Omnicom tie-up was expected to reshape the global marketing industry, leapfrogging rival WPP to the top position in the industry’s billings tables and affecting billions of dollars spent by the world’s largest brands everywhere from television networks to social networks.
The idea for the transaction, billed as a “merger of equals”, was born when Mr Levy made a joke to Mr Wren during a discussion on the rooftop of Publicis’ headquarters at the top of the Champs Elysées in Paris.
That set off months of secret meetings with advisers, resolving everything from the Dutch holding company structure to plans for the two men to serve as co-chief executives for 30 months after the deal closed.
The pair reunited at Publicis’ Paris headquarters last July to sign the deal, promoting the merger as a bet that scale matters in a new media and marketing world increasingly controlled by technology. “Size will matter,” Mr Levy told the Financial Times when the deal was announced. “What is true today is really not true tomorrow, and we have to be prepared for that.”
From the start, rivals and analysts warned that the deal would face client conflicts, regulatory risks and culture clashes. The drama crescendoed in recent weeks after Mr Wren told investors that unforeseen tax issues had thrown the merger into jeopardy.
“There is no plan B,” Mr Wren said in April. “Those things are a requirement to get a closing.” That news was coupled with reports of clashes between the two sides. Some senior executive appointments, including the role of chief financial officer, had not been announced.
The deal was structured so neither company nor its shareholders would incur tax, but the groups faced challenges receiving approval from tax authorities in France, the Netherlands and the UK.
As recently as last month, the companies said there was no reason to believe that the deal structure could not be achieved. Both CEOs added that they could still succeed on their own.
“We believe we are very well-positioned to compete in an increasingly complex dynamic landscape,” said Mr Wren in April. Mr Levy said: “If by accident things don’t happen, life is good for Publicis. Life is good whatever happens.”
The companies had expected $80m in annual tax savings and planned for a total $500m of annual savings – a conservative number by some analysts’ estimates – saying these would not require lay-offs.
Other benefits the companies outlined were expected to come from combining their ad buying groups to negotiate better rates for clients. Larger scale was also expected to spur more innovation in technology and data-related offerings by allowing them to pool research and development investment.
The deal’s unravelling could have ramifications across the industry, as the merger was expected to spark follow-on deals.
Publicis and Omnicom could now go it alone, seek a deal with another large ad company like Interpublic, buy smaller agencies in emerging markets or invest in data and marketing technologies, Brian Wieser, an analyst with Pivotal Research, said in a recent research note.