Omnicom & Publicis Abort $35B Merger - Analyst Blog

Advertising giants Omnicom Group Inc. OMC and Publicis Groupe SA (PUBGY) terminated their $35 billion merger proposal, putting an untimely stop to a deal that would possibly have created the world's largest advertising agency.

The two companies had announced the amalgamation and ultimate creation of Publicis Omnicom Group last July, which would have outshined WPP plc WPPGY as the largest advertising company. The debacle is a huge setback for the two companies, as the mega merger would have created an advertising powerhouse that would have leveraged digital and traditional competencies alike.

The companies jointly declared that the deal was called off due to complications in finishing the transaction in a rational time period, creating ambiguity in the minds of the shareholders and other interested parties. No termination fees are payable by either party.

According to media reports, the deal fell apart nine months after it was announced due to a combination of conflicting personalities, management conflicts regarding integration of the companies and regulatory and tax snags.

Per sources, integration issues included executives vying for key management spots in the merged entity and disagreements over which the company would be listed as the acquirer of the other. Also, China's antitrust regulator had not approved the deal, further delaying the process.

If the merger had been successful, the consolidated entity would have handled preeminent corporate clients such as AT&T, Visa and Pepsi, presently managed by Omnicom and McDonald's, Coca-Cola and Walmart, currently served by Publicis, under one roof.

The advertising business is highly competitive, and it is witnessing technological transformation and consolidation of late. Ad agencies are constantly under pressure to cut costs as clients look for better value. Technology giants such as Google, Inc. GOOG and Facebook, Inc. FB sidestep traditional agencies and utilize their huge storehouses of data to place ads, dominating digital advertising.

Even though this potential merger is off the table, the companies need to consolidate operations to better compete with Silicon Valley giants such as Google.

Omnicom presently sports a Zacks Rank #3 (Hold).

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