NEW YORK: Omnicom Group CEO John Wren said on a conference call Friday morning that if he had to sum up in a tweet why the $35 billion merger with Publicis Groupe was called off, it would read, "Corporate culture, complexity, and time," and he would still have 100 characters left.
The deal, which would have created the world’s largest marketing services umbrella company, was terminated on Thursday evening after months of turf battles over whose executives would fill top positions and international tax and regulatory issues that hindered the deal.
Omnicom’s Wren was following the lead of WPP CEO Martin Sorrell, who last night delivered his own Twitter-style verdict on the terminated merger in just four words: "Eyes bigger than tummy."
Wren added on Friday’s call that Omnicom and Publicis knew the merger would be complex because the companies needed legal approval from government regulatory authorities on antitrust and tax, and it needed to agree on a joint management team for the transition and the future. The companies also realized corporate cultural differences would be an issue, he said.
"I know now we underestimated the depth of these differences - and I want to emphasize these were differences of corporate, not national culture – which made it difficult to make major operating decisions," explained Wren.
The merger agreement provided for a structured transition to a single CEO, but Wren said, "Obviously, our efforts were insufficient."
Both companies are dedicated to taking care of their shareholders, so that was not an issue, but "the way we compensate or incentivize people did differ," added Wren.
He added that it wasn’t a big factor when the agreement was announced because other issues were lined up in front of it that added to the merger’s complexity.
While the differences likely could have been solved, he said it would have taken a long time and that didn’t bode well for a merger of this size.
He said when the merger was initially announced, the companies thought it would take six months to complete but, nine months later, many issues were still open and no end was in sight.
"It became clear to us that these complexities and risks outweigh the potential benefits of the merger," added Wren. "We and our board reached the decision that continuing was no longer in the best interest of Omnicom stakeholders."
Throughout the merger process, Wren said Omnicom lost no clients. Publicis, on the other hand, lost several large advertising accounts, including Microsoft, Miller Lite, and Samsung.
Timeline: Publicis-Omnicom’s ill-fated deal
A look back at the key moments since Publicis Groupe and Omnicom Group announced last July that they would merge to form Publicis Omnicom Group. On Thursday night, the companies called off the biggest deal in marketing history, a $35 billion combination that would have been the largest holding company in the world.
July 2013
- Publicis and Omnicom announce they will merge to form Publicis Omnicom Group, the world's largest marketing umbrella firm, a move that would trim the "big four" advertising holding companies to the "big three."
- A PR committee will be established to determine the future structure of the newly combined Publicis Omnicom Group’s PR and communications agency brands and assets.
- Experts say advertising rather than PR is likely to be hit first by cost savings following the Publicis and Omnicom deal.
- Initial reaction to the deal.
- Merger likely to pass antitrust hurdles, experts say.
September 2013
- Experts say the Publicis-Omnicom merger will inevitably lead to some talented staffers leaving for what they see as greener pastures.
November 2013
- Publicis, Omnicom merger gets US antitrust nod.
- Leaders of Publicis and Omnicom say merger completion date has been pushed back to mid-2014 at the latest.
January 2014
- The European Commission, the European Union's antitrust body, signs off on the pending merger of Omnicom and Publicis.
April 2014
- Publicis CEO Maurice Lévy tells Bloomberg TV, "We don’t see anything that could come in the way of an agreement," noting that Chinese authorities should approve the deal in the third quarter.
- Martin Sorrell, CEO of WPP, describes attempts by the holding companies to form a "merger of equals" as "impossible."
- Tax issues continue to plague the merger.
May 2014
- The proposed merger is costing the holding companies millions in fees, as the $35 billion deal is delayed by tax rulings and plagued by rumors of infighting.
- May 8 - The companies announce the deal is called off "by mutual agreement, in view of difficulties in completing the transaction within a reasonable timeframe."
In a separate conference call on Friday morning, Publicis Groupe CEO Maurice Lévy told analysts the company has not suffered throughout the deal and, while he has been distracted by the merger, he is now "back in focus."
With one of the objectives of the merger perceived to be to help both Publicis and Omnicom compete more effectively in the digital space, Wren said Omnicom’s digital capabilities are either misunderstood or underestimated.
He said the holding company has always helped its agencies invest in digital skill sets and talent, and it thrives on creating compelling brand-building experiences, as well as using data and analytics through its Annalect division.
One area Wren sees great potential for Omnicom is in technology-driven marketing, such as e-commerce and m-commerce. While no deals are planned for the immediate future, Wren said the company is always looking at potential acquisitions.
Wren wrote to all of the group’s major clients on Thursday evening, and said "they’re all very positive and recognize it was better to do what we did than enter a bad marriage."
Rich Tullo, director of research firm Albert Fried, which recently lowered its assessment of the probability of the deal going through from 66% to 40%, said both companies were "getting pushback on the merger from advertisers."
He added that Omnicom may have been hesitant about completing the deal since its merger partner recently lost advertising business that could have been worth $500 million to $1 billion.
Short term, Publicis has to deal with the ramifications of losing business but, longer term, Omnicom has to focus on becoming a digital enterprise because the merger was going to give the company greater exposure to digital advertising.
"I’m not totally sure the management team of [Omnicom] gets through this unscathed," added Tullo. "Somebody’s head has to roll. Either the directors have to step off the board or you have to let go of the CEO, because you can’t spend $50 million of shareholder money and not close the deal."
