As the merger between Publicis and Omnicom collapses, the companies downplay the issue
Publicis and Omnicom have backed out of a £35.1bn deal that would have catapulted the nascent company to the forefront of the advertising world. Executives allege that the deal fell through because prolonged negotiations started harming both companies. Questions remain, however, about how both companies will fare without the merger.
Though the deal had been in its final stages as early as last July, a number of snags have prevented it actually being closed in the months since. “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 and their employees, clients and shareholders,” said the executives of both companies in a joint statement. “We have thus jointly decided to proceed along our independent paths.”
[I]n the meantime, the real winner has been WPP, the British ad company growing faster than any other
Though both Publicis and Omnicom are two of the biggest players in the market, the global advertising industry has been evolving rapidly with the rise of new media platforms. The merger was initially proposed as a way to drive change in the companies, and allow them to compete in the new marketplace more effectively. However, as the deal falls through, these challenges remain, and it is unclear how Publicis and Omnicom will address them going forward.
The proposed merger would have created a new company, with ownership split evenly between Publicis and Omnicom. For the first 30 months, Maurice Levy, currently the CEO for Publicis, would have acted as CEO. It was widely touted as a merger of equals, which would have helped the companies save close to $500m through synergies.
The main issue with the merger was tax arrangements; when the deal was first proposed the company was looking to establish a tax-residency in Britain, while it would remain based in the Netherlands. But this arrangement proved controversial and parties could not come to an agreement. In the meantime, both were losing clients and money as the costs of the merger mounted.
The two companies now will likely have to regroup and devise alternative strategies to return to their positions at the top of the advertising game. In the meantime, the real winner has been WPP, the British ad company growing faster than any other. “There were big tax issues we were told and also a lot of what is called social issues,” said WPP boss Martin Sorrell, to CNBC. “It was turning into a bit of a soap opera because both companies in their Q1 statements were saying they were good on their own. I think this deal was driven by ego issues and emotional issues, I think both CEOs wanted to try and dislodge WPP from its number one perch and so it was emotional and egotistical. It was also a case of eyes being bigger than your tummy”.