Ad deal collapse busts ‘merger of equals' myth

Sun May 18, 2014 8:17am EDT
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By Soyoung Kim

NEW YORK (Reuters) - Mergers of equals were largely dead long before ad giant Omnicom Group Inc struck its ill-fated $35 billion deal with rival Publicis Groupe SA.

That didn't stop Publicis Chief Executive Officer Maurice Levy and Omnicom's John Wren from trying to sell the deal as just that to investors and employees, and won't stop other executives in the future, bankers and lawyers said.

In fact, the Omnicom-Publicis deal's undoing may have been that how close it came to merging two equal companies - they negotiated terms such as 50-50 ownership for the two sets of shareholders with no premium paid to either, a co-CEO situation with Levy and Wren and equal board representation.

It seemed so harmonious in Paris in July, when Wren and Levy toasted each other with Champagne under the Arc de Triomphe and posed for photographs in each other's embrace. Since then, the future co-CEOs bickered over who would fill key jobs such as chief financial officer, what would happen to Levy after Wren took over as sole CEO, and over such issues as the company's tax structure while combining the different cultures of a U.S. and a French company.

With two people in charge and key issues left for later, it became clear that the hype didn't match reality: one company was actually trying to take over the other, and the company being taken over was Publicis.

"The deal was gradually sliding from a merger of equals to a takeover and this is not what we had signed for," said a person close to Publicis last week. "Maurice made it very clear from the beginning: Yes to a merger of equals, no to an acquisition."

For companies, there are substantial benefits to portraying the deals as mergers of equals, even though the outcome may not always be best for investors.

For the buyer, such a portrayal can help reduce the premium they would have to pay. Steps such as giving the target significant board representation and a roughly 50-50 shareholder split in all-stock transactions shows that the seller's shareholders are not giving up all control, and so don't need to be paid as much for it.   Continued...

Maurice Levy (L), French advertising group Publicis Chief executive, and John Wren, head of Omnicom Group, gesture during a joint signature ceremony in Paris, in this July 28, 2013. REUTERS/Christian Hartmann