Publicis-Omnicom: Major Conflicts, Before and After the Merger

In a curiously, somewhat combatively titled press release ("Precision"), Publicis Groupe last week tried to assure the world that all remains well with its $35 billion merger with Omnicom Group. It laid out the technical challenges obstructing the deal's closure (Netherlands is the legal domicile; French tax authorities need to issue a ruling; the merged company's main residence for tax purposes will be the U.K.; and China still hasn't given an antitrust blessing). Publicis said the French process was "standard," it was "confident" about the U.K. and there was "no indication" that Chinese approval was not forthcoming in "a reasonable time period." It was all very, well, precise. Indeed, some of the delays, like the wait for a key filing with the Securities and Exchange Commission, don't necessarily spell doom. "Nine months is not out of the ordinary," said Donna Hitscherich, senior lecturer at Columbia Business School. "It takes time to get stuff together." Still, it feels like an eternity since the agency-company giants said last summer that their union might happen before 2013 was out. And just as the deal itself was a hard sell (remember the four press conferences held to explain its merits?), convincing people it isn't falling apart is proving just as difficult. Analysts and investors have started buying into the prospect that the deal could be thwarted by the French tax issue. That's probably a stretch. "I can't think of a deal scuttled by tax considerations," said Robert Willens, a tax expert and president of Robert Willens LLC. "I've never seen that happen." But the long engagement is clearly also rattling the nerves of company insiders who say there's more to the holdup than the regulatory hurdles now relentlessly cited. Both companies declined to comment for this story. Here's what outsiders are watching: Proposed merger is announced. Publicis and Omnicom say they expect to complete their merger as early as the end of 2013. Publicis CEO Maurice Levy claimed the French government has been supportive of the deal and it will get past regulators, while Omnicom CEO John Wren said advisers had "not raised any red flags." "I don't anticipate any major issues," said Maurice Levy, Publicis Groupe's chairman-CEO, while addressing analysts and press about the company's third quarter earnings on October 16. "The hard work is behind us –now it's just a process that we have to follow cautiously." U.S. antitrust regulators sign off on the deal. "We'll close certainly in the first half and as early as we can," Mr. Wren told a conference in November. Maurice Levy, Publicis Groupe chairman and CEO, says he anticipates a positive decision from China by mid-January, and from Colombia by the end of January, with other remaining territories to follow soon after. EU regulators approve the deal. The merger now looks likely to drag beyond the second quarter of this year, Omnicom CEO John Wren said during an earnings call. In announcing first-quarter earnings, both companies reference tax holdups in the UK and France, as well as reemphasize regulatory delays from China's antitrust authorities. "There is no issue if we go back to a standalone company," Mr. Levy said. "Life is good for Publicis whatever happens." "It's not practical to predict when the merger will close," Mr. Wren said. "The next steps are going back to regulators and [deciding] what we need to do and don't need to do. There is no plan B." Referring to tax agreements in the UK, among other things, he added, "We still have a lot of work ahead of us." One day after Omnicom's earnings, Publicis sent out a release entitled "Precision," outlining the regulatory hurdles remaining CFO struggle Executives at Publicis and Omnicom agencies say a battle for the chief financial officer spot is raging, part of the larger, slow-motion contest for dominance between the two giants. That pits Jean-Michel Etienne of Publicis against Randall Weisenburger of Omnicom. The two are vastly different in style and accomplishment. Executives based in the U.S. described Mr. Etienne as brilliant, having been closely involved in the holding company's acquisitions of U.S.-based Digitas and Razorfish. But he's more experienced with international institutions. Mr. Weisenburger is a Wall Street favorite, according to industry executives. "There's a clear preference among the Americans for Randy to have that job and presumably there's some horse-trading between the two entities about who gets what role," said Brian Wieser, senior research analyst at Pivotal Research. However, with Omnicom CEO John Wren poised to lead the combined company as chief executive (after an inevitably awkward 30 months with a co-CEO structure), putting Mr. Weisenburger in the CFO chair might upset Publicis and its home base of France. "Publicis is a huge employer and a huge part of French pride," said one executive familiar with the companies. "That's a big factor here." The future of media The future structure and leadership of the media agencies involved is just as complicated and the personalities involved just as diverse. And while the brands may not be merged, the media bosses will nonetheless be jockeying for power. The bosses include: Canada-bred and New York-based Daryl Simm, CEO of Omnicom Media Group; Chicago native Laura Desmond, CEO of Starcom MediaVest Group, part of Publicis; and U.K.-based Steve King, CEO of Zenith Optimedia, also part of Publicis. The contrast was evident at the Publicis-Omnicom get-to-know-you gathering in Miami last fall, according to people familiar with the matter. In presentations about their agencies, the three were also encouraged to share something personal. Mr. King showed photos of himself bike-riding, discussed the firm's basic approach and ROI positioning, and acknowledged his respect for Omnicom's media operation and opportunities for collaboration with OMG. Ms. Desmond talked about SMG's experience-agency positioning and capabilities, and showed photos of a sunset from a summer vacation. And Mr. Simm presented the basics on the shops' models (PHD is planning-oriented, for example) and how they work together. He passed on the personal photos. Digital hubs Bringing together their digital functions will give the holding companies an opportunity to seek efficiencies and strengthen their capabilities. But doing so won't be easy. For one, the two sides are structured differently and there's no clear leader. Publicis has large digital agencies like Rosetta, Razorfish and Digitas LBi, which operate independently within the holding company. All have proprietary technology and huge teams that specialize in working with vendors like IBM. Omnicom's digital services and agencies, however, are woven into their larger general-market agencies, like BBDO and TBWA/Chiat/Day. At Publicis Groupe, Rishad Tobaccowala sits above the three digital giants as chairman. Omnicom Digital CEO Jonathan Nelson oversees digital strategy for each group. While these digital media and data groups have clear strengths and similar goals, Omnicom wins for consistency. Scott Hagedorn has run Annalect since its inception in 2010, and Josh Jacobs has overseen trading desk Accuen for a few years. At Publicis, VivaKi has struggled to forge an identity since restructuring and putting its financial chief, Frank Voris, at the helm. Kurt Unkel, former president of the VivaKi Nerve Center and programmatic ad-buying platform Audience on Demand, left this January to take on the chief digital role for WPP's Team Detroit.

Publicis-Omnicom: Major Conflicts, Before and After the Merger

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