* Pitfalls of 'merger of equals' emerge amid clash over CFO
* Omnicom, Publicis tie-up delayed by antitrust, tax reviews
* Both sides remain committed to deal - sources
* Dutch tax authorities cool on UK tax residency plan -
By Leila Abboud and Tom Bergin
PARIS/LONDON, April 27 The chief executives of
advertising companies Publicis and Omnicom Group
are working together to resolve a seven-month-old
struggle over who will be chief financial officer of their
combined group if the $35 billion merger is completed, three
people close to the deal said on Sunday.
John Wren, the head of New York-based Omnicom, and Maurice
Levy, his opposite number at Paris-based Publicis, are in
regular contact to try to settle the CFO choice, which has
fuelled tensions between the two sides since September as they
seek to secure regulatory approvals for the blockbuster deal,
the people said.
Both remain committed to the tie-up, which would create the
world's biggest ad agency ahead of current leader WPP,
added the sources.
The infighting over the CFO shows the pitfalls of trying to
engineer a "merger of equals" as the deal was billed when it was
announced to much fanfare in July.
Some analysts, investors and rivals have expressed doubts
over whether executives and staff in the two companies,
especially their veteran CEOs, will be able to effectively work
together if the deal is completed. Other mergers with similar
profiles, including a 2006 Franco-American tie-up between
telecom equipment makers Alcatel and Lucent
Technologies, have foundered over culture clashes.
The CEO of rival WPP, Martin Sorrell, said on Friday that
most people he was speaking to said there was now a third to a
half chance that the deal would not be completed.
The tensions between the top executives of the two companies
were first reported by the Wall Street Journal on Friday.
The merger calls 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 closing.
The two companies initially aimed to close the deal in the
first quarter of this year, but an ongoing China antitrust
review and tax jurisdiction issues that were disclosed by
Omnicom last Tuesday have delayed completion. Publicis said last
week that the deal would close in the third quarter, but
Omnicom's Wren now declines to predict timing.
Omnicom wants its CFO, Randall Weisenburger, to get the top
finance job, while Publicis wants its CFO, Jean-Michel Etienne,
the people said.
PROFIT MARGIN QUESTION
Behind the spat over the group's finance chief is a deeper
question about how the new operation should be run, said two of
To boost profits, Publicis has long centralised many
purchasing and support functions for the roughly dozen
advertising agencies it owns, such as Saatchi & Saatchi, Leo
Burnett and Razorfish. Analysts say the approach has helped
Publicis achieve higher operating profit margins than its
rivals; its margin stood at 15.9 percent last year, compared
with 12.5 percent for Omnicom and 15.1 percent for WPP.
The choice of the CFO could determine whether the new
company adopts the Publicis approach or the more decentralised
model favoured by Omnicom in which individual agencies have more
leeway in everything from technology systems to supplies, the
"There are ongoing talks on the leadership issue," said one
of the people on Sunday. "Wren and Levy are determined to find a
solution because it is simply in the interests of both
companies. The best guarantee of success is the two CEOs
determination to complete the deal."
The companies also continue to work on resolving tax issues
that have slowed down the deal. Wren spooked investors on
Tuesday when he disclosed that the companies had not yet been
able to get approval for their plan to have a tax residency in
Britain, while being legally headquartered in the Netherlands.
Although the British tax authorities sent a positive signal
in meetings with the companies over the new entity being tax
resident in Britain, the Dutch authorities were not supportive,
two of the people said. The Dutch rejected the idea that the new
company could be legally based in that country but not be
subject to local tax rules.
"The Dutch authorities expressed a desire not to lose their
tax sovereignty over the new company to the English," said one
of the people.
One option to solve the problem might be to seek double
residency for tax purposes in both Britain and the Netherlands,
which is rare but may be workable, the person added.
Publicis and Omnicom continue to work on the issue. The
Dutch and the British would have to agree for Omnicom and
Publicis' original British tax residency plan to become a
Another approval needed from France's tax authority is on
track and not expected to pose a problem, the sources said.
OTHER SIGNS OF TENSION
Besides the tussle to name the finance chief, there are
other signs that relations between the two companies are
They have not been able to agree on which company will be
listed as the "accounting acquirer", or the buyer from an
accounting standpoint, on official filings to the U.S.
Securities and Exchange Commission. While the issue is a
technicality, it has gotten tangled up in the CFO fight, one of
the people said.
Usually in an acquisition, the accounting acquirer is the
party receiving the bigger share of the equity and voting rights
in the new company. In the Omnicom-Publicis deal both sides are
due to receive an equal stake and voting rights in the new
company, so a series of criteria must be analysed to determine
which side is the accounting acquirer.
Robert Willens, a corporate tax and accounting analyst based
in New York, said the dispute over accounting acquirer pointed
to a disagreement over management control.
"That could be symptomatic of other, more deep-seated
conflicts between the companies," he said.
WPP's Sorrell said he would prefer the deal go ahead because
in his view mergers of equals don't work. "I think the best
result for us, frankly, would be for the deal to go ahead with
joint CEOs, fighting with one another about who's running the
company," he said in a Reuters Insider interview.
(Reuters Insider: r.reuters.com/qax78v)
Sorrell said the results conference calls from Publicis and
Omnicom last week "sounded like two ships passing in the night."
(Additional reporting by Anjuli Davies and Jennifer Saba;
Editing by Martin Howell)