* Merger of equals founders over power struggle - Levy
* Tax, regulatory issues had held up closing
* Analysts see tougher times, M&A ahead for ad sector
(Adds remarks from Omnicom executives from call)
By Anjuli Davies, Soyoung Kim and Leila Abboud
LONDON/NEW YORK/PARIS May 9 The $35-billion
merger of U.S.-based Omnicom and France's Publicis
collapsed on Friday after a battle for control
destroyed plans to create the world's largest advertising
The deal, heralded in July as a merger of equals that would
enable the two agencies to compete more effectively in the
digital arena, foundered on issues ranging from its complex tax
structure to the firms' divergent cultures.
The two sides were also losing major work - more than $1.5
billion in the past month alone - and did not want to let the
"I have not been able to convince John that balance is
balance," Publicis Chief Executive Maurice Levy said of his
Omnicom counterpart, John Wren.
"Omnicom wanted their people to fill the CEO, CFO and
general counsel jobs," he told Reuters. "I thought that went too
far. I was not ready to cede on this point."
For his part, Wren said the two sides had failed to find a
way past the strong corporate cultures that existed in each
"There was no one factor," Wren, 61, told Reuters.
"There are a lot of complex issues we haven't resolved.
There are strong corporate cultures in both companies that
delayed us for reaching an agreement. There was no clear finish
line in sight, and uncertainty is never a good thing when you
are in the personal service business."
On a conference call with analysts and reporters on Friday,
Wren summed up the broken deal with a nod to Twitter: "If I had
to summarize in a tweet it would be, corporate culture,
complexity and time. And I would still have 100 characters
Two people familiar with the situation said relations
between the two sides began to unravel in December, with
tensions simmering between Levy and Wren, and the Frenchman
believing the deal was turning into a takeover rather than a
One person said the men met two weeks ago to agree what to
The key dispute over who should be chief financial officer
would have influenced whether the new company inclined towards a
centralised structure to manage costs, which Publicis argues has
driven its higher margins, or Omnicom's more devolved approach.
Neither company will pay a termination fee, and they will
split the costs of the failed deal, such as legal fees.
With the deal off the cards, analysts predicted a period of
turmoil ahead for the industry as Publicis and Omnicom seek to
re-engage with clients after recent business losses.
Wren disputed that Omnicom lost clients because of the
merger, saying it was "absolutely not true."
One global consultant who advises clients on media spend
told Reuters that agencies within Martin Sorrell's WPP,
which will keep its crown as the world's largest advertising
agency, had won a lot of work of late by cutting fees.
He advised existing clients of Publicis and Omnicom to use
the uncertainty to negotiate better terms. He noted that some
client work coming up for review in the coming months would also
pit agencies owned by the two firms against each other.
Publicis shares were down almost 1 percent, while Britain's
WPP was flat. Omnicom was down 0.3 percent. Smaller
French player Havas, seen as a takeover target, jumped
"We see the consequences for the agency space as negative
as, shorter-term, it is likely to lead to a more competitive
environment and, longer-term, it dashes the hopes that the
merger would lead to an easing of pressures in staff costs and
client fees," wrote Liberum analyst Ian Whittaker.
Some analysts also said further deals could crop up
involving perhaps fourth-largest agency Interpublic and
Japanese advertising group Dentsu.
Sorrell told Reuters the failure of the deal had turned into
a soap opera.
"You now have the charade of them trying to say we're just
as well off apart as we were together, which begs the question
of why spend a couple of hundred million dollars to prove that
being together didn't work. It was ill thought through."
Although Levy still believes Publicis should be bigger to
cope with the way technology is changing the ad business, he
demurred on whether the group needed a big acquisition.
"For now, our goal is simple - to accelerate our strategic
plan," he said.
On Omnicom's part, executives said the company will
reinstate a share buyback program and seek to increase the
dividend. They are still looking for acquisitions, executives
"I think it'll be a very long time before we try to do a
merger of equals again," Wren said on the call.
Omnicom spent $50 million to $60 million on outside advisors
for the merger.
Publicis and Omnicom had justified the union as a way to
provide scale and capital to cope with technological forces
reshaping the industry.
Wren and Levy, who toasted the tie-up with champagne in
Paris last summer, had said it would enable them to better
compete with the likes of Google Inc and Facebook Inc
, which dominate digital advertising, an area that
accounts for nearly a quarter of global marketing spending.
The planned merger had called for a 50-50 ownership split of
the equity in the new company, Publicis Omnicom Group, with Wren
and Levy serving as co-CEOs for 30 months from the
Signs of trouble between Omnicom and Publicis appeared late
in April, when Wren disclosed hurdles to getting the deal's tax
structure approved by regulators in Europe. He ominously said he
could not predict when the deal would close and said there was
"no Plan B" if the tax issues were not resolved.
Soon after, media outlets reported that the fight over the
leadership of the future group had frayed relations between the
two sides. One person on the French side said Omnicom appeared
less willing to compromise in recent weeks than Publicis, which
was trying to save the deal.
Levy had previously postponed retirement plans as succession
at Publicis remained an open issue prior to the deal. Those
questions are likely to come to the fore again.
Brian Wieser, a senior analyst at Pivotal Research, said
that though the potential merger was handled badly, there was
still pressure on ad agencies to strike deals as they were
squeezed by clients looking to cut costs.
"M&A and consolidation is still on the table, but now there
are more potential flavours," he said.
He said Publicis was still a more likely a buyer than a
seller, and Interpublic a more likely seller.
"The question is not whether or not there will be bids, but
at what price Interpublic would sell, especially considering it
should have a strong year on an operating basis."
(Additional reporting by Jean-Michel Belot in Paris, Aman Shah
in Bangalore, Sophie Sassard and Kate Holton in London, and
Jennifer Saba in New York.; Writing by Leila Abboud and Kate
Holton; Editing by Eric Walsh, Richard Chang, Ken Wills, Will
Waterman and Bernadette Baum)