Omnicom Blames Profit Drop On Merger Costs
Reporting its first results since the announcement of its proposed merger with Publicis Groupe Omnicom Group said today that it posted a 2.5% increase in 3rd quarter revenue to nearly $3.5 billion while net income was down 3.9% to $196 million.
The company attributed the income drop to expenses related to the merger which totaled $28.1 million (pre-tax) in the quarter. Excluding those merger expenses the company said profits would have been up 6.8% to $217.7 million.
Much of the discussion on a Tuesday morning conference call between Omnicom management and analysts focused on the pending merger. CEO John Wren confirmed that senior management from the both companies would be meeting “later this month” to discuss possible integration strategies and “day one business requirements” for the merged entity. As reported earlier, that meeting will take place later this week in Miami.
Wren told analysts that while the
partners were committed to integrating the two companies, “there are no plans to merge individual agency brands. Identity and culture are important.” That said, Wren added that companies
“will sit down and plot” how their different platforms for production, collecting data and doing transactions might be integrated and better leveraged for the benefit of clients.
“There is an integration process,” said Wren. “We’ve agreed to use the time [prior to approval] to sit and plan what’s the most sensible thing to do once we’re allowed to act.”
“Big ideas will not be replaced by algorithms anytime soon,” said Wren, adding that the merger partners have “the right combination of Mad Men and Math Men.” He insisted that the feedback some two-and-a-half months after the merger announcement from clients and employees continues to be “very positive.” As to client conflicts, he said, “we’ve seen no difficulties thus far.”
The Omnicom CEO said that the merger process is proceeding apace and that that regulatory applications have been filed for some 47 different markets that the companies do business in. CFO Randall Weisenburger estimated that the company might spend “1.5 to two times” what the company has already spent on fees related to completing the merger process. “It’s a lot of attorneys running around non-stop,” he said. Also, the company commissioned economic studies of all of the markets that require regulatory approval.
There have been a couple “minor victories” in the approval process already with both South Korea and South Africa granting clearance. Other governments are asking follow-up questions. “It’s in process and we’re comfortable with the conversations” that are ongoing, Wren said.
Organic growth for the third quarter was 4.1% overall; 5% in the U.S.; 7.5% in the UK, and an average 4.5% everywhere else. Euro markets continued to lag, down 1.6%. Organic growth for the first nine months of the year was 3.2%.
Strong performing categories included food and beverage, consumer goods, retail, a rebounding pharmaceutical and healthcare business and telecommunications. Signs are pointing to a healthy fourth quarter, although the company sounded one cautionary note: that Thanksgiving is late this year, thus shortening a little the traditional holiday shopping season.