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Publicis CEO Maurice Levy, left, and head of Omnicom, John Wren, during a joint signature ceremony for the companies’ merger, in Paris on July 28, 2013. (CHRISTIAN HARTMANN)
Publicis CEO Maurice Levy, left, and head of Omnicom, John Wren, during a joint signature ceremony for the companies’ merger, in Paris on July 28, 2013. (CHRISTIAN HARTMANN)

Merger of outsized egos foils Omnicom, Publicis deal Add to ...

When the $35-billion (U.S.) mega-merger between Omnicom Group Inc. and Publicis Groupe SA was announced last July, it was billed as a merger of equals that would allow the ad giants to better compete in a digital, globalized business world.

It was also a merger of egos, with Publicis chief executive officer Maurice Lévy looking for a succession plan, and both he and Omnicom CEO John Wren seeing the chance to leapfrog Sir Martin Sorrell’s WPP Group PLC as the world’s largest ad agency holding company. And those egos are now at least partly to blame for the deal falling apart.

There were other considerations, too.

The companies had already signalled that regulatory hurdles in China and tax approvals in Britain were holding up a process that was originally supposed to take six months to close.

But disagreements over control of the new company also pushed the deal off the rails. At the time of the announcement, Mr. Wren and Mr. Lévy had agreed to share the CEO role for a 30-month transition period; after that Mr. Lévy would depart and Mr. Wren would have the top job.

But other executive roles had not been decided, and that led to clashes. Because Omnicom’s CEO would take over, Mr. Lévy felt that Publicis’s chief financial officer should keep his position. According to reports, there were also disagreements over which company would technically acquire the other.

“I have not been able to convince John that balance means balance,” Mr. Lévy said during a conference call to discuss the news on Friday.

On another conference call, Mr. Wren was equally blunt: “I think it’ll be a very long time before I try to do a merger of equals again,” he said.

Nevertheless, industry watchers generally agree that consolidation is going to continue. – even though both sides say they are not looking to do big deals in the near future. Big marketing services firms have a lot of cash to work with and are looking for growth. As the biggest advertisers increasingly look to emerging markets, And as clients demand more capabilities to gather and analyze consumer data, the larger advertising holding companies want to use their size as a selling point.

“Size matters,” Mr. Lévy said on the call. “ … Particularly in this new world of big data, size matters.”

But the quest for size became an issue for both companies, as the deal tied up management’s focus for nine months. Publicis and Omnicom also lost work – as much as $1.5-billion in the last month alone, according to Reuters. Though no client losses were pegged on the deal itself, and both CEOs denied those reports Friday, others noted that the uncertainty could not have helped.

According to the companies, the merger would have led to an estimated $80-million in tax savings and roughly $500-million in “synergies,” or cost savings, over five years. As a combined multinational, they said they would be better positioned to serve big clients. with their global marketing needs.

Both CEOs had also trumpeted the growth in “big data,” and how it affects marketing, as a serious competitive driver. They had claimed that together they would better be able to compete in a new digital world. But some observers called those claims into question.

“Strategic merit was unclear to us from the beginning,” Wells Fargo analyst Peter Stabler wrote in a note on Friday. “… Though we do believe that the growing role of data and technology presents a level of new challenges, we didn’t believe this combination of assets would materially change the competitive balance.”

“It never seemed particularly compelling,” Wedbush Securities analyst James Dix said. in an interview. To the extent that size and global reach is a selling pointfor bigger clients, he noted, Publicis already had a big enough presence in emerging markets to make those claims on its own.

Another possible benefit of the merger could have been cross-selling agency services to grab a bigger share of clients’ marketing budgets. But again, both companies were already large enough to do so on their own. And it can sometimes be difficult to make agencies cross-sell others’ services within their networks – not to mention to convince clients that it is a good idea.

“Clients like to have some competition [among agencies] too,” Mr. Dix said. “You don’t like to be entirely beholden.”

Now, the question will be how the industry continues to reshape itself. in a battle to be biggest.

“I believe it can work,” Mr. Lévy said of a merger of equals. “I believe it is a possibility. I believe that something happened which changed the dynamic. What, I don’t know. That is now part of history.” And we are back to the future.”

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Statements on the dissolution of what would have been advertising’s biggest-ever business deal:

“I certainly wrote to all my major clients on the announcement last night and have gotten back quite a number of responses. And they’re all very positive and recognized that it was better to do what we did than to enter a bad marriage. And some of them admire it for not going through.”
Omnicom CEO John Wren speaking on a conference call Friday morning

“The fact that we are not realizing a dream doesn’t mean that we have no dreams. It is disappointing that we have this dream, which is not going through. But it is much better to not go to the church than to go to the judge. So we are divorcing before getting married. This is leading us to rebuilding the Publicis strategy.”
Publicis CEO Maurice Lévy, on a separate call on Friday

“Two CEOs sitting together for six months without expensive advisers can’t make a deal, especially if they haven’t figured out the details before announcing. It showed.”
WPP PLC chief executive officer Sir Martin Sorrell, speaking to The Wall Street Journal with barely-contained glee

“Our clients, as always, continue to be our primary focus. That’s the key message we called out when Omnicom and Publicis originally announced their ambition to be the biggest marketing services company in the world. As we said then, bigger doesn’t mean better in terms of the quality of our thinking or our dedication to clients, which is what it’s ultimately all about in our business.”
Michael Roth, chairman and CEO of Interpublic Group of Companies Inc., in a memo to employees

“Advertising has always been about brains and talent, especially now, because consumers are influenced differently in a digital economy. … The concept that just by building global scale you’ll be able to better service clients, is not empirically correct. This is not like Procter & Gamble and Gillette combining.”
Miles Nadal, CEO of Toronto and New York-based MDC Partners Inc.

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