Publicis and Omnicom Broke It Off. What Now?

Holding Cos. Still Have to Settle Issues Such as Succession and Appeasing Clients

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What's next for Publicis and Omnicom?

Now that the merger that would have created the world's largest holding company at $35 billion is over, the "equals" walk away with their own sets of wounds and challenges. For Publicis, the breakup resurrects the issue of finding a successor to CEO Maurice Levy. For Omnicom and CEO John Wren, it puts a big black smudge on a pristine reputation for savvy agency deals.

For now, it's safe to say mega-mergers are off the table for both.

PUBLICIS

It's back to square one on finding a successor for Mr. Levy, who has already postponed retirement and is due to leave at the end of December 2015 after more than 40 years at Publicis. "The question of my successor is one for the supervisory board," he told Ad Age, because "I'm not the king."

The most logical internal candidate is Arthur Sadoun, elevated in October 2013 to global CEO of Publicis Worldwide. It may be unlikely he can do that as soon as the end of next year, but if he makes a promising start, Publicis' supervisory board may consider again asking Mr. Levy -- who is 72, and says he definitely plans to retire at the end of 2015 -- to stay on a little longer until Mr. Sadoun is ready.

In the short term, the holding company won't put the brakes on its aggressive M&A strategy, but it will steer clear of large-scale deals. "We'll definitely go back to some acquisitions," said Mr. Levy during a call discussing the breakup. "For the time we are not exploring … and we don't plan to explore, any large acquisitions."

"Publicis still appears a more likely buyer than a seller," said Pivotal Research analyst Brian Wieser in a note to investors. "IPG is an obvious target for Publicis given past efforts and prior relationships, although Publicis never pulled the trigger previously, and that gives pause to this notion. Still, Publicis always had clear designs on gaining scale. Toward that end, a scenario which might be worth considering now is Publicis raising capital and bidding for Omnicom outright with a mix of shares and cash."

Mr. Levy will have to turn on the charm for clients, especially on the heels of losing its massive Microsoft digital and media accounts. But for some at the agency ranks, client retention is less of a concern. A Publicis executive who asked not to be named said clients are mostly just "making fun" of the failed merger and how it was handled.

OMNICOM

To be sure, the Publicis-makes-a-bid-for-Omnicom scenario is a more than a bit far-fetched. But don't expect Omnicom to rest easy if it happens.

To the extent that the company still wants scale, the "natural fit" would be IPG, said Mr. Wieser in a note to investors.

But the short-term focus for Omnicom will be to refocus on capital returns through significant buybacks, said Mr. Wieser. "Omnicom is not clearly a buyer of anything other than its own stock, but it won't likely be a willing seller."

Like Mr. Levy, Mr. Wren may have to do some reputation management on the client front. "I got a few 'WTF'-question-mark emails from my clients," said an Omnicom executive who wished to remain anonymous. "Clients notice the failure of our leadership."

Mr. Wren, he said, will "have to defend [the holding company on its own] after a year of saying what we have is not enough."

"The best bet for both [companies] will be to go back and put their heads down and drive financial performance," said MDC Partners' CEO Miles Nadal. "Don't underestimate these firms."

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