There’s No Such Thing As a Merger Chapter 2

Let’s take a look at what happened to the Publicis Omnicom Group merger.

Sensitivity around the buyer-seller positioning, particularly with respect to “equals,” is well illustrated by the failed union of Publicis Group SA and Omnicom Group, Inc. in 2014.  The two media giants were set to combine into a $35 billion enterprise, with total combined revenues of approximately $23 billion and synergies of $500 million, making it the world’s largest media company.  To be true, deals fail all of the time.  The reasons why two giant companies cannot “come to a deal” are varied and many.  However, power and control, whether overt, disguised, conscious or subconscious are largely in play.  The failed Publicis Omnicom Group deal highlights the inability of two “equal” organizations to either (a) combine and maintain equal power and control, or (b) reach an agreement whereby one organization emerges as the acquiror.  

It should come as no surprise that the more evenly matched two companies are, the more involved the power struggle is apt to become.  Each party in the Publicis Omnicom Group deal was a globally dominant player that had already grown extensively through acquisition.  While legal, tax and cultural issues certainly contributed to this failure, headlines indicated that structure and control issues abounded.  

Publicis CEO, Maurice Levy, and Omnicom CEO, John Wren, fell victim to the beautiful-in-theory, not-practical-in-real-life snare of a 50-50 ownership, co-CEO arrangement.  The original plan was for them to serve as co-CEOs of the new company for 30 months.  After 30 months, Wren would become the sole CEO, and Levy would become the nonexecutive chairman.  However, they failed to agree on a CFO and from which company he would come. Wren wanted to bring his CFO, but Levy was uncomfortable with having both an Omnicom CEO and CFO long term.  I would imagine that in addition to performance-based arguments, Wren wanted the continuity of working with his right-hand man since he would endure as CEO long term.  

Reports also surfaced that the parties could not agree on an acquiror.  According to the New York Times, Publicis finally conceded to letting Omnicom be the acquiror, but before anyone knew it, the deal was over. On May 8, 2014, Reuters wrote, “Battle for control destroyed $35-billion Omnicom-Publicis merger.”  Reuters noted a few interesting points -  namely that people familiar with the relations between the two sides said that the deal began to unravel when Levy believed the deal was turning into a takeover.  And why shouldn’t Levy feel that way?  Wren was pushing hard to keep his CFO in-role, and with Omnicom structured as the acquiror, and filling both the CEO and CFO jobs, the reality defied the initial optics of a 50-50 partnership.  

We cannot blame Wren or Levy.  These two savvy CEOs were acknowledging an M&A truth: there is no balance of power in a “merger” scenario. One company surfaces as the acquiror, the purchaser, the stronger and more empowered of the two.  Neither Wren nor Levy was prepared to cede to the other party.  Even if an agreement had been consummated, each of Wren and Levy has spent over 30 years with his respective company, and surrendering to an “equal” is a psychological, emotional and mental hurdle which may not work out in practice.  In that respect, Wren and Levy are lucky to have called it quits, because divorces are much more costly. 

Co-ownership and co-management are wishful thinking. In this case, the attempt to co-manage and equally own the surviving company resulted in months of fruitless negotiations and an operative hit to each company while management pursued a dead-end.  While a stock exchange among similarly sized organizations is common, one party must have majority control and act as the acquiror.  Attempting to create “balance” because it sounds nice is not practical, and it does not lead to the best deal outcome. Leadership structure must be worked out preliminarily, before public announcements are made; and the parties must be honest about adopting the solutions best-suited for the resulting relationship, regardless of their origin. 

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