Omnicom and Publicis call off $37bn merger

Advertising giants Omnicom Group and Publicis Groupe have called off their $US35 billion ($A37.4bn) merger, according to people familiar with the situation.

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, as well as differences over which company would be listed as the technical acquirer of the other, people familiar with the matter have said.

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 such as Google.

The mega-merger would have created the world’s largest ad holding company by revenue, combining firms such as ad agencies 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 companies had made clear it was to be a merger of equals, where the shareholders would each receive about 50 per cent of the equity in the new company — Publicis Omnicom Group — and where the two CEOs would share the top job for 30 months from the closing.

But despite the merger-of-equals billing, technically one company has to acquire the other, for accounting reasons. The two sides hadn’t agreed on which company would be the acquirer of the other, which held up filing of crucial paperwork with the US Securities and Exchange Commission, said people familiar with the situation.

Delays in obtaining regulatory approvals, particularly in China, were also a factor. At the same time, relations between the two sides had severely frayed, people familiar with the situation have told The Wall Street Journal.

Many of the disagreements stemmed largely from the two CEOs, Omnicom’s John Wren and Publicis’ Maurice Lévy, one of the people familiar with the situation has said.

The two sides had butted heads over issues including where the combined company would be headquartered and which executives would fill top roles.

The companies had been at loggerheads in particular over who would fill the position of finance chief.

Differences over the position were so stark that last November, Omnicom executives told an analyst in the US that its CFO Randy Weisenburger would get the job while Publicis executives told another analyst its CFO Jean-Michel Etienne would get it, according to a person familiar with the situation.

The two sides recently came to realise that there were too many obstacles to overcome, and that at any rate to do so would take a long time, one of the people familiar said on Thursday.

For the sake of their clients, the companies decided that walking away from the deal was the best course, this person said. Personnel issues alone weren’t a deal breaker, this person added.

Neither company has to pay a $500 million breakup fee if the deal fails because of a failure to secure necessary government or regulatory approvals.

In recent weeks the companies have given starkly different messages about the status of the merger.

During a quarterly sales call with analysts in mid-April, Mr Lévy, the Publicis CEO, said he thought the deal could close in the third quarter. A week later, Omnicom’s Mr Wren said that he couldn’t predict when the deal would close because of its “complexity and open issues”.

This would be one of the largest announced deals to later be called off.

For Publicis, the lack of a deal will put pressure on Mr Lévy, 72 years old, since the deal helped solve a succession issue for the French company.

Publicis’s board in 2010 asked Mr Levy to extend his tenure as CEO, highlighting the struggle for the group to find a successor to Mr Lévy, who headed up Publicis for more than 30 years.

Mr Lévy has worked for years to move Publicis to the top ranks of the global ad business. Publicis executives suspected that if the Omnicom deal didn’t go through, Mr Lévy would continue his efforts to acquire other marketing and advertising companies, specifically in the digital space where he has been most aggressive.

One possible target would be Interpublic Group of Cos, the fourth-largest ad company by revenue, with which Mr Lévy has had conversations over the years.

Unlike Publicis, Omnicom hasn’t been as active in acquiring digital companies but has focused more on building digital capabilities internally. The company is likely to continue down this path and put greater emphasis on its big data business.

Still, both companies cited that they needed this deal to better compete with Silicon Valley companies such as Google.

The lack of a deal is likely to raise questions from investors as well as the industry about their respective alternative strategies.

Additional reporting: Ruth Bender and Suzanne Vranica