Tax Issues, China, Continue To Delay POG Merger

The process of completing the mega merger between Publicis Groupe and Omnicom is moving slower than expected, Publicis Groupe CEO Maurice Levy acknowledged today as the company released its first quarter earnings results. China still has not approved the deal.

Earlier this year, Levy said he expected that country's green light shortly after the Chinese New Year festivities, which ended mid-February. 

Tax issues have evidently been a key factor holding back the deal’s completion, reports Brian Wieser, senior research analyst, Pivotal Research Group. From the perspective of Publicis, Wieser writes, the one critical issue is a favorable ruling from French tax authorities that would allow the merger to move forward tax-free for Publicis investors.

That said, the company seems confident that shareholders will be in a position to vote on the merger in time for its upcoming annual meeting on May 28. The company said that it will provide its shareholders with a detailed report setting forth the terms and conditions of the merger prior to that meeting.

In addition to China, various approvals are required from governmental financial agencies and exchanges. There’s also a law suit pending in New York by Omnicom shareholders claiming that the agreement does not adequately compensate them.

The companies still hope to complete the deal by the third quarter. However, entertaining the possibility that the deal could run aground, CEO Levy indicated that if the deal does not move forward for any reason, he believes Publicis remains well-positioned.

Meanwhile Publicis reported organic revenue growth—a key performance indicator for the industry--of 3.3% in the first quarter of the year, which was a significant improvement over Q1 2013 (1.3%) and the previous quarter (less than 1%).

In total, Publicis Groupe’s consolidated revenue for the first quarter of 2014 rose 6% to approximately $2.187 billion dollars. Total digital revenue was up 10.4% (Europe: 10.2%, North America: 8.3%), while its analog revenue (Europe: -1.2%, North America: 0%) was down about 1%.

"The global economy has shown signs of a recovery in certain regions, but remains very slow to pull out of the crisis of the last five years and economic situations have been highly contrasted," Levy said.  "U.S. growth is driven by vigorous demand in the private sector. In the Euro Zone, the recovery varies from one country to another, but remains feeble except in Germany and the UK. The southern European economies have improved slightly, but remain very fragile. Despite a temporary slowdown, China plays a major part in global growth." 

Publicis Groupe's digital business is the boom to its bottom line. Digital now generates over 40% of total revenue, while the Groupe’s declared objective is for digital to account for 50% by 2018.

The U.S. was also a strong growth driver in Q1, accounting for 49.8% of revenue. 

Looking forward, the company said it was maintaining its 4%-plus organic growth objective for 2014, “though growth will not be as strong in the second quarter due to the high comparables," the company said.

The agency expects strong performances in the USA, Germany, the UK, Australia and Mexico. France should remain stable, while the southern European countries are expected to continue to report negative growth. Spain should also stabilize, say executives.

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