Publicis CEO Levy Disappointed at Collapse of Omnicom Deal--Update

By Dow Jones Business News, 
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Publicis CEO Levy Disappointed at Collapse of Omnicom Deal -- Update


By Ruth Bender

PARIS--For nine months, Publicis Groupe SA Chief Executive Maurice Lévy has argued his proposed megamerger with Omnicom Group Inc. would help solve both strategic and succession questions facing the company--and provide a fitting coda to his four-decade career in advertising.

Now the 72-year-old Frenchman is back to square one.

"I am disappointed that I couldn't bear this to fruition," Mr. Lévy said in a conference call Friday. "We decided it was better not to go to the church, rather than end before a judge."

The breakup of what would have been the advertising world's biggest-ever marriage puts both companies at a strategic crossroads. Both argued when laying out their merger plans last year that advertising companies need big scale to compete with the likes of Google Inc. and Facebook Inc., and match their investment in new data-heavy promotional technology. Now that the deal is off, both will have to wrestle with gaining that scale as standalone groups, analysts said.

"There is no easy substitute for this deal," said Claudio Aspesi, an analyst at Sanford C. Bernstein. "It's still an open question how Publicis and Omnicom will pursue the scale they both knew they needed."

Mr. Lévy said his company would continue to bulk up in the digital arena but added that for now Publicis had no plans for a large acquisition.

"We are back to a new start," Mr. Lévy said, adding that the merger had never been a necessity for either group but would have been a "formidable opportunity."

In the past years, Publicis along with rival WPP PLC has pursued a strategy of aggressively pushing for acquisitions to boost growth, mainly in digital and emerging markets. Mr. Lévy said the company will continue with that strategy and even "accelerate" a plan that aims to boost its profit margin by 2 to 4 percentage points between 2012 and 2018 and grow its share of digital revenues.

The breakdown of the merger also reopens a thorny issue: Mr. Lévy's lack of a stated succession plan. The deal would have solved that problem by eventually easing the executive into a chairman role. Publicis's supervisory board will reopen the succession question before September, Mr. Lévy said, adding that he intended on completing his mandate, which runs through the end of next year.

A major issue that scuttled the merger was Mr. Lévy's resistance to tilting the balance of power too much to Omnicom CEO John Wren, away from a merger of equals, the French executive said.

Mr. Lévy said the key point of disagreement between him and Mr. Wren was about who would fill top management positions besides Mr. Wren, who was due to take over as CEO after an initial 30-month period during which the two would have shared leadership.

Mr. Lévy said that while Publicis wanted to assure an equal distribution of power, Omnicom was pushing to fill the posts of CFO and general council on top of the CEO job. "It is not a merger of equals if you have a CEO, CFO and general counsel only from one side," Mr. Lévy said. "We were not implementing a merger of equals at the governing bodies."

Company insiders say the two CEOs had been stuck on that thorny issue for some time.

"They kept having the same conversation over and over again but never got anywhere," a person close to Mr. Lévy said. "The problem was there was no referee," another person familiar with the matter said.

The final decision to call off the merger was made Thursday evening, when both companies' boards met to approve plans to abandon the deals. Mr. Lévy called a conference call with his top management team in the middle of the night to announce their decision, according to people familiar with the matter.

Despite speculation in recent weeks that the proposed merger would collapse, senior Publicis executives believed the project would still go through. "Many people thought up until the end that Messrs. Lévy and Wren would work things out," the person close to Mr. Lévy said.

Mr. Lévy said Publicis and Omnicom also stumbled on the challenge of marrying two very different corporate structures. The French group has been centralizing a lot of back office tasks across agencies it owns, such as IT infrastructure and shared purchasing mechanisms. Omnicom on the other hand has a model that leaves its operating companies with much more leeway of how to run its business.

"We feared that our model would be diluted," Mr. Lévy said.

Write to Ruth Bender at Ruth.Bender@wsj.com

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  05-09-141222ET
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