So, the big is not always the best. The mother-of-all ad company continues to be a dream as the ad giants Omnicom Group and Publicis Groupe called off their $35 billion merger last Thursday, bringing a premature end to a deal that would have created the largest advertising company in the world.
A mix of clashing personalities, disagreements about how the companies would be integrated and complications over legal and tax issues derailed the deal nine months after it was announced.
The collapse is a huge setback for both companies. When the merger was announced last summer, it was billed as an opportunity to create an international powerhouse with the capabilities to serve large and small clients alike with a mix of digital and traditional agencies.
The deal was also seen as a response to the technological transformation of the industry, where the collection and sale of the personal information of millions of consumers is rapidly growing in importance. That business is competitive, with technology companies like Google and Facebook using their huge repositories of user data to place ads, in many cases bypassing the traditional agencies. Those agencies are under pressure to deliver more value for their customers.
But for Omnicom and Publicis, little progress had been made nearly a year after work on the deal began. The companies had not yet started to share client contracts with each other, and relations between teams that were intended to integrate remained frosty.
Omnicom, which is based in New York and led by John D. Wren, grew through acquisitions and came to dominate Madison Avenue with a family of agencies including BBDO, TBWA and DDB. Publicis, which is based in Paris and led by Maurice Lévy, owns Leo Burnett and Saatchi & Saatchi, among other agencies.
At the time the deal was announced, the companies agreed that both men would be co-chief executives to start and that after 30 months, Mr. Wren, who is 60, would become the sole chief executive while Mr. Lévy, 71, would become nonexecutive chairman. But both Mr. Wren and Mr. Lévy are strong-willed, and people close to the deal said that their personalities clashed.
One significant unresolved issue was which company would be acquiring the other one. After much persuasion, Publicis was prepared to allow Omnicom to be the acquirer, according to people briefed on the matter. But Publicis then balked at the notion that Omnicom’s management would retain control of both the chief executive and chief financial officer roles. Omnicom was pressing to have its finance chief, Randall J. Weisenburger, keep his role.
That would have made the deal essentially an Omnicom acquisition of Publicis. In addition, Publicis executives contended that their company had the stronger financial model and was better positioned to integrate the merged corporation’s finances.
Another holdup was the fact that China had not granted the deal regulatory approval. China’s antitrust regulator, known as Mofcom, is often the last global regulator to approve big mergers and acquisitions. But people close to the process said that had Mofcom not given its blessing within the next several weeks, the companies would have had to restart the global regulatory process, delaying the deal further.
By February, Mr. Wren was signaling that the deal could be in jeopardy
“This transaction is highly complex and is taking longer than we originally expected,” Mr. Wren said at the time while discussing his company’s fourth-quarter earnings with analysts.
No termination fees will be paid as a result of the deal’s collapse.
“It seems incredulous that this merger fell apart because of disagreements over roles and responsibilities,” said Brian Wieser, an analyst at Pivotal Research Group. “These are things that shareholders should have expected to be sorted out before the merger was announced.”
Mr. Wieser said that Publicis shareholders had been expecting it to do a big deal but that Omnicom investors were caught off guard when the merger was announced.
“Publicis going through this wasn’t surprising,” Mr. Wieser said. “But Omnicom shareholders were never prepared for this to happen in the first place.”
But he predicted that industry consolidation would continue. “Publicis has been very clear. They want to get bigger,” he said.
He said Publicis could make a hostile bid for Omnicom or go after another big player like the Interpublic Group. Dentsu, a large Japanese advertising firm, might also seek some kind of deal.
“We’ve essentially tossed the salad up in the air,” Mr. Wieser said.
Both companies have spent nearly a year preparing for the merger, leaving teams at both companies distracted, according to people briefed on the matter. The impending deal also created an opening for their rivals. In recent months, WPP has poached several big accounts from Omnicom and Publicis. WPP is the No. 1 advertising group and, with the merger busted, will most likely stay that way.
If the merger had gone through, many of the world’s biggest corporate clients would have been served by the same company. AT&T, Visa and Pepsi are Omnicom clients, while McDonald’s, Coca-Cola and Walmart work with Publicis.
Mr. Lévy and Mr. Wren issued a joint statement announcing the end of the deal.
“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,” they said. “We have thus jointly decided to proceed along our independent paths. We, of course, remain competitors, but maintain a great respect for one another.”
In a separate statement, Mr. Lévy said Publicis would continue with its own previously outlined growth plan.
“This merger was always one of opportunity, not necessity,” he said. “The decision to discontinue the process was neither pleasant nor an easy one to make, but it was a necessary one.”
The two companies find themselves back in the same competitive spot they were a year ago.
Technology is transforming the business by targeting ads to individual consumers, with online advertising growing at a faster rate than television. Companies like Google, Facebook and Twitter that collect information on their users can work directly with companies and cut out the traditional advertising agencies.
At the same time, new competitors in the digital advertising space have emerged over the last few years, including Accenture, Sapient and Deloitte, consultancies that have built up their marketing and data divisions to include many services once provided exclusively by ad agencies.
“We see the lines have been blurred between the various functions and the various players,” Mr. Lévy said after the merger was announced last year. “In this world you have to partner and you have to compete with a lot of players.”
Vindu Goel also contributed to the article. © The New York Times 2014