Publicis Omnicom Group

The Publicis Omnicom Group was a proposed advertising conglomerate announced on July 28, 2013 to be formed from a merger of Publicis and Omnicom.

The merger would have created the world's biggest advertising group with market capitalisation of $35.1 billion, pro-forma revenue of $22.7 billion, and more than 130,000 employees across the world.^[2][3] After the merger, Publicis Omnicom and WPP would have been considered the largest advertising groups in the world.^[4] The Publicis and Omnicom chief executives heralded the proposed operation as a "merger of equals" saying that Publicis and Omnicom shareholders will each hold about 50 percent of the new group's equity. The group would have had head offices in Paris and New York.^[2]

The deal was called off in mutual agreement by both sides on 9 May 2014 after a relationship breakdown in proposal.

Merger

Rationale

The unexpected merger was proposed by Maurice Lévy, CEO of Publicis.^[5] The mega-merger puts together Publicis with Omnicom, respectively with $8.8 and $14.2 billion in revenues in 2012, and a market capitalisation of $14.6 billion and $16.7 billion at the announcement. This compares with WPP, who recorded $15.6 billion in 2012 revenues and has market capitalisation of around $20 billion.^[6] On a pro-forma basis, the merged entity becomes the biggest advertising group on the market, and would have around $5 billion more revenue than the current market leader.^[7] The merger consolidates the sector, as it pulls the two largest, Publicis Omnicom and WPP, significantly ahead of the next largest – Interpublic Group, Dentsu and Havas.^[4] In a reference to the increasingly powerful new media giants Google and Facebook, Lévy noted the merger was a response to the sea-change in the communication and marketing landscape and the blurring the roles of all players, to the benefit of clients.^[2][4] Publicis stated that $500 million in synergies would be generated.^[7]

Although Omnicom generated more top-line revenues than Publicis, its profit margin is only 15% compared to 18% achieved by Publicis. Thus Lévy was able to leverage this and obtain half of the new company for Publicis shareholders in an "equal" merger". Sir Martin Sorrell, head of WPP, praised the "extremely bold and brave and surprising move", but expressed reservations about the different cultures to be merged.^[4]

Organization

The proposed company would be listed on stock exchanges in both Paris and New York, corresponding to the previous headquarters of Publicis and Omnicom respectively,^[3][7] and the OMC ticker on the NYSE retained.^[5] However, Lévy stated that for reasons of neutrality (and not tax), the new holding was to be registered in the Netherlands.^[4] The merger, which received unanimous approval of both boards, would close in late 2013 or early 2014. The 71-year-old Maurice Lévy would jointly head the group with Ominicom's John Wren during the initial integration and development period lasting 30 months, after which Levy would become non-executive chairman and Wren sole CEO.^[2] The board would have equal representation from Publicis and Omnicom, its 16 directors include both Lévy and Wren.^[5]

Ownership

The Publicis and Omnicom chief executives heralded the proposed operation as a "merger of equals" saying that Publicis and Omnicom shareholders will collectively each hold about 50 percent of the new group's equity.^[2] Trade press reported the unwillingness of Élisabeth Badinter, daughter of Publicis' founder Marcel Bleustein-Blanchet and chairman of the supervisory board of Publicis, to exit – she apparently refused to be bought out by a banking syndicate. However, as the largest shareholder of Publicis, she is expected to have her 9.13 percent holding of the company diluted by half as a result of the merger.^{[6][Notes 1]} Omnicom CEO John Wren is reported as holding 1.1 million Omnicom shares, and considerable number of stock options that a change of control would crystallise.^[6]

Concerns

The deal is subject to regulatory approval, although the French government has indicated its support, according to Lévy.^[2][8] As the deal will bring together worldwide networks like BBDO, TBWA and DDB from Omnicom as well as Leo Burnett, Publicis, Saatchi & Saatchi under a single holding company, there exists potential for client conflict. AdWeek notes that PepsiCo is handled by Omnicom's TBWA\Chiat\Day and the Coca-Cola account resides at Publicis' Leo Burnett. Similarly, AT&T is with Omnicom and Verizon with Publicis.^[6]

Some commentators have expressed concern, with Craig Le Grice of The Drum saying that it will be "creating a sector essentially owned by two holding companies",^[9] but not all industry observers are equally worried.^[2] Wren believes that the merger would "create value and new opportunities".^[5]

Cancellation of merger

The expected completion of the merger in late 2013 failed to materialise, and created great uncertainly for the industry players.^[10] In May 2014, it was announced that the merger would no longer go ahead due to the magnitude of challenges yet remaining.^[1] The announcement was made in a statement released jointly from the two chief executives of Publicis and Omnicom.^[1] Reuters reported that the two holding companies' agencies had been losing billions in business pitches due to the uncertainty, and that business worth $1.5 billion had been lost just in the last month prior to the decision to cancel, and that WPP agencies had aggressively cut fees to gain new business from their rivals, but this was denied by Omnicom^[11]

From the start, huge difficulties were foreseen for a merger of this magnitude, most importantly different corporate cultures and management philosophies.^[12] There were known to have been significant tax issues.^[11] While Wren was keen to emphasise in explaining the collapse that "there was no one factor" at play responsible, Lévy indicated the deal-breaker was Omnicom's insistence on keeping all three top posts for its own executives. Lévy said: "it is not a merger of equals if you have a CEO, CFO and general counsel only from one side".^[13][14] While Omnicom has a more devolved organisation and lower margins than its counterpart, it is known that Publicis enjoys higher net margins and does so through greater centralisations; the CFO position would have been a key determinant in the merged organisation.^[11]

Notes

References