“…the fundamental problem was cultural differences between the two enterprises….”
It’s a good thing they figured that out before the merger.
Joblicis and Omnicom: An Awkward Disembrace
“THERE’S no point going to the justice of the peace only to end up before the divorce-court judge”—or its French equivalent—said Maurice Lévy (pictured left) this morning, commenting on the break-up of the planned $35-billion merger announced last July between Publicis, the French advertising firm he heads, and Omnicom, an American rival.
The reason, he told Radio BFM Business, is that it proved impossible to consummate the “merger of equals” the two firms, numbers three and two worldwide, had embarked upon. Rows over regulation and fiscal matters contributed to scuppering the deal. But the fundamental problem was cultural differences between the two enterprises and clashes between the two strong personalities at their helm (John Wren, chief executive of Omnicom (pictured right), is no shrinking violet either). “Going backwards is not an easy decision to take, believe me,” said Mr Lévy.
The break-up poses a couple of questions. The first is where it leaves the world advertising market. The merger would have created the largest advertising and communications company by revenues globally, outstripping the current leader, WPP. The idea, the companies said at the time, was to create a counterweight to internet giants Google and Facebook in the digital advertising market. Does it matter that this will not happen? Publicis will continue to fight its corner as a free-standing business, with no plans for another big partnership, Mr Lévy asserted. Yet he also said that among the first messages he received after news of the bust-up had begun to circulate were communications from Google and Facebook. So far this morning share prices have barely budged.
A second question is whether the dissolution of the mega-merger will dampen the M&A fever that is sweeping across markets, and with it upwardly mobile share prices. The collapse of the enormous project is a reminder that execution risk in these deals is not negligible. Some fusions are more likely to destroy value than to create it, so all merit closer examination. And it can be harder than it originally looks to reap tax benefits from relocating merged headquarters to fiscally friendly jurisdictions. Publicis-Omnicom struggled to get French, Dutch and British authorities to sign off on their complicated deal, one reason why matters dragged on and enthusiasm soured.
But it is political risk that hangs most heavily over two other high-profile deals. Laissez-faire Britain’s politicians have become less blithe about letting Pfizer, an American drugmaker, walk off with AstraZeneca. And France’s government is determined that Alstom, its turbines-to-transport group, remain a pillar of the country’s tech sector despite private-sector plans for dismembering it.
Alstom has accepted in principle a €12.5 billion ($17.3 billion) bid for its energy operations from GE, an American conglomerate. Under pressure from the French government it has also given Siemens, a German rival, until the end of May to come up with a better offer, perhaps involving a swap of Alstom’s energy assets for Siemens’s transport operations.
Today Arnaud Montebourg, the economy minister, has taken time off from attempting to fine-tune the GE bid (a current possibility is getting a successful GE to cede some of Alstom’s renewables business to Areva, another French firm) to travel to Berlin. There he is seeing his German opposite number, Sigmar Gabriel. Discussing Siemens and Alstom is very much on the agenda.