Advertising mega merger cancelled

July 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

The proposed mega deal between advertising giants Omnicom Group Inc and France’s Publicis Groupe SA has been called off. According to the firms, the obstacles to merging the two rivals into the world’s largest advertising agency ultimately proved too much to overcome.

The deal had hit a number of roadblocks since being announced in summer 2013. The transaction was supposed to close in December 2013, however it will now go down as one of the largest deal breakdowns in history.

Although the transaction was billed as a ‘merger of equals’, for accounting reasons one of the two companies was required to acquire the other. It is believed this was a major point of contention during the merger discussions, the two companies being unable to come to an agreement regarding which would acquire the other. This disagreement held up the filing of crucial paperwork with the US Securities and Exchange Commission (SEC).

Both companies believed the merger would result in cost savings of millions across their networks, and would allow them to solidify their presence in the global market. However, with the firms confirming there would be no job losses, how these savings would be achieved was unclear.

The merger, announced in July 2013, would have created the world’s biggest advertising group by revenue, combining agencies such as BBDO, Saatchi & Saatchi, DDB, Leo Burnett and TBWA as well as public-relations firms including FleishmanHillard and Ketchum, and digital ad agencies DigitasLBi and Razorfish. The holding companies involved in the merger had combined revenues of roughly $23bn in 2012. If the deal had been completed the merged company would have had a combined $35bn market capitalisation.

In a statement released on 8 May the companies said the proposed deal was cancelled by mutual consent with both boards voting unanimously to end the merger process. Omnicom and Publicis noted that the firms were unable to complete the deal within a reasonable timeframe.

As a result of the deal’s cancellation, both parties have agreed to release one another from all obligations and no termination fees will be payable by either party. In May’s statement, Maurice Lévy, chairman and chief executive of Publicis, and John Wren, president and chief executive of 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 and their employees, clients and shareholders. We have thus jointly decided to proceed along our independent paths. We, of course, remain competitors, but maintain a great respect for one another.”

At the time that the deal was initially announced there were concerns the transaction would be blocked by various regulatory bodies. Antitrust and tax concerns in Europe in particular were believed to be potential barriers to the deal’s completion. The firms held a joint conference call on 22 April noting that the deal was progressing much slower than originally anticipated as a result of complex regulatory requirements.

The cancellation of the merger is unlikely to have a negative effect on consolidation within the advertising industry. Global advertising revenue is set to exceed half a trillion dollars in 2014, and with the advent of big data and a steady stream of technology giants such as Google Inc and Facebook Inc looking to increase their advertising revenue, it is inevitable that advertising companies will turn to consolidation for growth.

Richard Summerfield