* Decision on shareholder returns expected in July
* Investors turn attention to Publicis future, M&A
* CEO Maurice Levy says Publicis needs to be bigger
* Levy says no large acquisitions in works, few small ones
* Technology changes make scale more important in ad biz (Recasts, adds details from conference call)
By Leila Abboud and Gwénaëlle Barzic
PARIS, May 9 Advertising agency Publicis will probably return money to shareholders and pursue smaller acquisitions this year as it seeks to get back on track after the failure of a $35 billion merger with U.S. peer Omnicom .
Chief Executive Maurice Levy told Reuters in an interview on Friday that the board backed him to stay on despite what was arguably the biggest setback of his more than 30-year tenure.
"The board considers that we managed things correctly, and they are 250 percent supportive of my decision," said Levy.
The deal with Omnicom was supposed to give Publicis the critical scale to thrive as technology changes the advertising business. It could also have resolved the difficult issue of Levy's succession.
Instead, the deal, billed as a merger of equals, foundered over leadership conflicts that deepened during delays to tax and antitrust approvals. The two sides were also losing talented staff and major clients - more than $1.5 billion in the past month alone - and did not want to let the uncertainty continue.
Publicis shares rose more than 1 percent at the open, but by 11:06 GMT were down 0.6 percent to 60.33 euros.
Seeking to reassure, Levy pledged to give more details on the company's standalone strategy at first-half results in mid-July, as well as announce a shareholder return package that had been put off because of the merger.
"We don't want to disappoint our shareholders. They deserve to get a good return," said Levy on a conference call. "But it is too early for me to give a specific amount or structure."
Greater scale was supposed to give a combined Publicis-Omnicom better bargaining power in buying space for ads on TV, the web and in print, at a time when many global brands are looking to cut costs on advertising.
Levy also did not rule out that Publicis would need to make acquisitions now that the deal was off. "Size matters... to escape from the dictatorship of price pressure."
"For the time being we are not exploring and we don't plan any large acquisition," said Levy. "We had selected a few targets under our old plan, and those are what we are now working on, very cautiously."
Analyst Claudio Aspesi wrote in a note that Publicis would probably focus on smaller deals for a period, but that he expected that speculation would return about a possible acquisition of Interpublic Group.
Fourth-largest Interpublic, which owns admired agencies such as Huge and R/GA, has a market capitalisation of $7.39 billion, compared with 12.95 billion euros ($17.95 billion) for Publicis.
"With a much needed wave of investments to face the mobile migration of digital advertising, this sound rationale existed last July and still exists today," wrote Aspesi in a note.
"The silver lining is that we think Publicis can afford an adequate technology investment program in the next five years."
It may not be Levy, who is 72 years old, to write the next chapter for Publicis however. Levy said he would stay on until the end of his mandate at the end of next year, and that the board would begin planning for his retirement this September.
"The next task for the board will be to plan for my succession," he said. Before the merger attempt, Publicis Chief Operating Officer Jean-Yves Naouri was widely seen as the likely successor to Levy and could come back into the frame. ($1 = 0.7214 Euros) (Editing by Mark John and Peter Graff)