Omnicom Blames Merger Collapse on Cultural Differences
As news of the Omnicom and Publicis Groupe breakup takes the industry by storm, Omnicom told its side of the story in a conference call Friday morning. And, like Publicis, the holding company isn't hiding any more behind the tax or regulatory challenges that both have blamed for delays and snags over the past few months.
"We knew there would be differences in corporate cultures of of Omnicom and Publicis," Omnicom CEO John Wren said on the call. "I know now that we underestimated the depths of these cultural differences. I want to emphasize these were differences of corporate not national culture."
The decision to call off the merger came more than nine months after Publicis and Omnicom announced a plan to team up in a $35 billion "merger of equals." But it had become apparent that time wouldn't help the rivals sort through their cultural differences.
"Uncertainty is not good for anyone and when we announced this transaction we believed we would have completed it within six months" Mr. Wren said during a question-and-answer stage of the call. "When we came into our joint management meeting in Miami, it should have given us additional momentum to get over the finish line in that period. Here we are nine months later with a lot of issues. There was no finish line in sight. That's just not healthy."
The attempted combination proved to be an endeavor the ad giant isn't eager to repeat. "I think it'll be a long time before I try to do a merger of equals again," said Mr. Wren.
He downplayed the costs associated with trying to get the merger done. Over the last nine months, the company used outside advisors "as opposed to distracting fellow Omnicom employees," he said. Costs such as advisory and professional fees, most of which the company incurred last year and recorded in the first quarter this year, totaled $55 million to $60 million before taxes, CFO Randy Weisenburger said. "It's not a very large number," added Mr. Wren.
The company is about $500 million to $700 million behind in planned share repurchases due to the merger processes, Mr. Weisenburger said. "Since we suspended the share repurchase program because of the merger we now have catching up to do," he said. Those plans will be on top of "doing whatever would be normal during the periods going forward."
Larger size was always cited as a top motivation for the merger, but Omnicom said Friday that getting bigger wasn't essential. "We never said scale was needed," said Mr. Weisenburger. "We said scale was an opportunity."
Mr. Wren said Omnicom did not lose clients because of the proposed merger, calling the idea "absolutely not true."
When asked what he would do differently if he could go back and re-do the merger, Mr. Wren said he wasn't quite sure how to answer. "There are a lot of different factors," he said. "There were a lot of complexities. It was a merger of equals. We underestimated the cultural differences and if I had that answer I probably would have brought it up."
For now, both companies have an obligation to explain to clients why they're better off working with individual companies, after touting the efficiencies and complimentary skills that would soon be achieved by the merger.
So far Omnicom seems to have sent only a barebones note to clients. "As you know a good concept is worth nothing unless it can be brilliantly executed in a timely way," the note, sent Thursday night, reads in part. "Both parties have now decided that it is in the best interest, therefore, of our clients, people, and shareholders to terminate the proposed merger."
Mr. Wren's message was similar to but not entirely in sync with Publicis' message during a call Friday morning in Paris.
"What was becoming a big problem was to have the combination of all these issues, combined with the fact we could see a drift in our business model, and that the balance of the merger of equals could be broken," Publicis CEO Maurice Levy said during that call. "When you look at all these aspects together, we were running a risk of generating uncertainty during a long while."
But Mr. Levy also implied that Omnicom had asked for too much. "A merger of equals can work, if equality is respected," he said. "You cannot say something and do something different. And equality is something for which we were absolutely in favor. You cannot have a merger of equals where you have the CEO, the CFO, the general counsel, coming from the same company. Otherwise you tell me what a merger of equals is all about."
Mr. Wren began his call Friday by dumbing down the explanation for the split to what he'd say in a tweet: "'Corporate culture complexity and time' ... And still have 100 characters left." He returned to the idea later in the call to use the rest of the characters: "Omnicom strong innovative energized and ready for the future."