In a boost to rival WPP, the $35bn (£20bn) merger of Publicis and Omnicon to create the world’s biggest advertising company has collapsed, the companies have confirmed.
The traditional advertising industry has seen big changes is recent years and is now having to adapt to the growth of social media platforms such as Facebook. The proposed merger was expected to help the two firms respond to these changes.
However, while waiting for the merger to go through, Omnicom lost key contracts to rival WPP, including those of pharmaceutical giant GlaxoSmithKline and Vodafone.
WPP chief executive Sir Martin Sorrell told the Financial Times that the attempted deal seemed to have been “driven by emotion to knock WPP of its perch and, of course, by French charm. In the end it was a case of eyes bigger than tummy,” he said.
In a joint statement, France’s Publicis and the US’ Omnicom said: “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.”
Publicis chief executive Maurice Levy told French TV channel BFM: “The decision to discontinue the process was neither pleasant nor an easy one to make, but it was a necessary one.”
There will be no termination fee for either company, it was also confirmed.
The proposed merger was announced last July by Mr Levy and John Wren, the boss of Omnicom, hoping to create a giant able to take on ad giant WPP and internet behemoths such as Google and Facebook, while making cost efficiencies of nearly £300m.
They were to share their clients and have a greater geographical reach.
But regulatory difficulties in finalising the deal, as well as reported disagreements over crucial appointments such as a chief financial officer, proved too much for the firms.
Investors seemed to have taken the news calmly. Shares in Publicis traded up slightly on Friday as did those of WPP.
The two companies said they would continue to “remain competitors, but maintain a great respect for one another.”
Analysis
Commenting on the Publicis/Omnicom deal collapse Keith Hunt, managing partner, Results International, said: “Sir Martin Sorrell is likely to be adland’s happiest man this morning and will be grinning ear to ear for some time to come. There have been rumours for a while now that the deal was slowly unravelling but few predicted that it would happen quite so quickly. Sorrell didn’t change his strategy when this mega-merger was announced last summer and he is unlikely to change anything much now other than going after staff and clients from both networks.
“However it will be interesting to see how Publicis and Omnicom clients, staff and shareholders react in the days ahead.
“Having been told to expect a brave new world nine months ago, some clients are likely to be feeling pretty unsettled on the back of this morning’s news. To be fair the relationship between clients and agencies tends to be a tight one and it’s never the easiest thing for a client to change its agency. While most of the relationships will be sound, if there are any that are a little wobbly then this news might be the straw that breaks the camel’s back.
“The same goes for staff at Publicis and Omnicom. After months of uncertainly since the ‘merger of equals’ and the promise of being the world’s number one network was announced there will be even greater uncertainly over jobs. The heads of the network agencies will have a big job to settle down nervous staff.
“The US stock market is about to open and it will be interesting to see the effect on share prices. There could be a serious loss of credibility for both Wren and Levy. They will have a massive job to do on the investor relations front and if share prices start to slide drastically their futures are likely to be in question.
“The big winners of all of this are likely to be the independent agencies. They were the ones most at risk from the massive firepower created via this mega-merger and will be feeling far safer now that it has gone away. On the people front there are likely be some senior executives from Publicis and Omnicom who may decide to try the independent route, either by setting up their own start-ups and taking clients with them or by taking equity stakes in independent agencies who may be courting them. The perfect storm of disillusioned staff and disillusioned clients potentially falling out of Publicis and Omnicom makes this a good time for independents.
“And then there are the parallels to be drawn between this deal and AstraZeneca/Pfizer. As the Publicis/Omnicom saga shows us, tax and regulatory issues can be a key factor in deals coming apart. The reluctance of tax authorities to rubber stamp deals will be something that is likely to be on the minds of the senior executives at both AstraZeneca and Pfizer in the months ahead.”
Read the official announcement here