The massive “merger of equals” between Publicis Groupe and Omnicom Group that would have created the industry’s largest ad agency holding company proved to an unsolvable equation and was erased from the chalkboard yesterday.
“The challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups and their employees, clients and shareholders,” Publicis chairman and CEO Maurice Lévy and Omnicom president and CEO John Wren said in a joint statement.
Rumors about the difficulties in executing a plan that was purportedly intended, in part, to restore the balance of power between venerable agencies and the likes of upstarts such as Google and Facebook have been swirling in the media for weeks. Agencies involved include such brand names as Omnicom Group’s BBDO Worldwide, DDB Worldwide and TBWA\Worldwide, and Saatchi & Saatchi, Leo Burnett and Fallon from within Publicis.
“For several weeks now, we realized that we were in a dead-end situation and that the best thing would be to turn back and focus again on our own plans,” Lévy said in an interview with the Wall Street Journal.
“We thought we would be through this in six months and nine months later we still have a lot of complex time-consuming issues that because of different corporate cultures we haven't been able to resolve,” Wren said in the same piece. “There was no finish line in sight, and that created uncertainty.”
And that uncertainly led to a situation where the two sides were butting heads, starting at the very top, the WSJ’s Dana Mattioli, Ruth Bender and Suzanne Vranica report. Disputes included who would do what in the executive suite, where HQ would be located, and which agency would formally go down in the books as the acquirer and who would be the acquired. There was also a problem getting regulatory clearance in China.
“If the merger had gone through, many of the world’s biggest corporate clients would have been served by the same company,” David Gelles observes in the New York Times. “AT&T, Visa and Pepsi are Omnicom clients, while McDonald’s, Coca-Cola and Walmart work with Publicis.”
But combined, the two holding companies “have lost more than $1.5 billion of client work in recent weeks and face a fight to retain billions more, including a huge Samsung contract [at Publicis],” Reuters’ Kate Holden, Jennifer Saba and Leila Abboud reported last week.
“Some experts said that the merger of the two holding companies wasn't a big issue for many clients,” they wrote, citing consultant Judy Neer. “Many of her clients weren't concerned about the merger provided it didn't impact the specific ad agency subsidiaries they deal with.”
Still, “several large contracts, including Vodafone's $1 billion global media and buying account, moved hands from Omnicom to WPP in April,” and WPP honcho Martin Sorrell has not been shy about crowing about it.
“Sorrell said his company had begun to pick up clients and executives from the two rivals,” Jeffrey McCracken and Kristen Schweizer reported in Bloomberg Businessweek. “Levy exercised his charm and seduced Wren into a transaction under the Arc de Triomphe,” Sorrell said. “The motions of this were more emotional than rational to knock WPP off its perch” [as the No. 1 holding company in terms of revenue].
Publicis recently has lost Microsoft business and Omnicom lost Danone, the Globe and Mail’s Susan Krashinsky reports. “No direct moves have been pinned directly on the merger, but uncertainty over the past month could not have helped,” Pivotal Research analyst Brian Wieser wrote in a note cited by Krashinsky.
“News of the merger's failure seemed to come as a surprise even to some of the most senior agency leaders, both at Publicis- and Omnicom-shops,” reportsAd Age’s Alexandra Bruell. “Some od the holding companies’ largest clients were caught off guard by the announcement, too, with one senior executive saying there had been no communication from either Publicis or Omnicom.”
“From the start, despite explanations of anticipated cost- and resource-efficiencies — $500 million in savings, despite a promise of no job cuts — it was unclear why the two companies were merging, how they would do it successfully, and how it would benefit clients, how it would benefit brands,” writesForbes’ Jennifer Rooney, “— indeed it was unclear why bigger necessarily would be better.”
As Adweek’s Noreen O’Leary asks in her lede: “What were they thinking in the first place?” And, as she concludes, “Now it remains to see what the industry’s most high-profile, expensive failed transaction will do to the reputations of the companies’ two chief executives in the twilight of their careers….”
As well as what it will do to their agency’s relationships with clients who may question, as blogger and former ad guy Brain Jacobs has since the beginning, “a single benefit” of the now-scuttled deal “to anyone not called Levy or Wren.”