Omnicom CEO John Wren spent most of his time today on an earnings conference call with analysts, explaining how complex the process is of completing his company’s proposed merger with Publicis Groupe.
From thorny tax issues in France and the UK to continuing questions about the deal from China to required approval by securities bodies in the U.S. and Europe, it’s become a bit of a quagmire, Wren said.
Both companies have previously acknowledged that the approval process is taking longer than originally anticipated Wren went further today saying it was no longer “practical” to provide an estimated completion date, given all the work that remains to be done.
He noted that the companies are in what he termed “phrase three” of the approval process in China, but that questions continue to flow from authorities within the country’s regulatory bureaucracy. It’s possible, Wren said, that the Chinese won’t give a green light by a mid-June deadline, and the companies will have to withdraw their applications and begin the Chinese approval process anew.
There are also outstanding tax issues, in France and other countries, which if not resolved, could kill the deal. Essentially, the company is seeking to complete the deal on a tax free-basis for both the companies and both sets of company shareholders.
As part of the merged company’s tax strategy, the proposed merger partners have applied to Dutch and UK authorities to have exclusive tax residency in the UK even though the company will be based in the Netherlands.
“Very unexpectedly,” said Wren, the companies have not yet been able to obtain the desired regulatory tax status they are seeking. If that status is not obtained, he added, “it could effect the likelihood of the satisfaction of the conditions of the closing of our deal.”
Asked by one analyst if there was an alternative plan in the event that the sought after tax status wasn’t achieved, Wren replied: “There is no Plan B.” Establishing tax residency in the UK is a must in order for the deal to go forward, he said.
Meanwhile, Omnicom delivered a very solid first quarter performance, said Wren. “2014 is off to a very strong start,” he said, adding that the company is “on plan” so far to meet its full-year goals.
The company posted a 3% gain in revenue for the first quarter with organic growth—a key performance indicator that excludes the impact of currency fluctuations, acquisitions and divestitures—of 4.3%. Net income was essentially flat at $201.4 million. It would have higher but for the $7 million in merger related costs, which being non-deductible, came directly off the bottom line.
North America remained a solid regional performer for the company, where organic growth was 4.8%. Europe continues to improve slowly—that region posted organic growth of 2.3%. Other regions also turned in stable organic growth including Asia Pacific (5.7%), Latin America (7.4%) and Africa/Middle East (6.6%).