The Publicis-Omnicom transaction has been cancelled. So, what now?
The root cause of the deal falling apart was almost certainly managerial and organizational matters rather than taxes or anti-trust issues.
The affair has been fascinating, though less so for shareholders who might have presumed that the endeavour was pursued under clearer terms.
Costs and disruption to personnel have been very real, with client and investor relationships likely impacted on the margins. This was especially true for Omnicom, as the industry’s most stable holding company abruptly changed positioning with respect to its need for scale.
Meanwhile, Publicis has faced an extreme bout of misfortune in client losses of late. No direct moves have been pinned directly on the merger, but uncertainty over the past month could not have helped.
The big question now is what comes next. Further consolidation is still likely, but specific shapes and timing are uncertain. Most paths lead towards an Interpublic acquisition, but then such an outcome was likely to happen previously. The end of POG doesn’t necessarily accelerate the timing for a deal, but it does increase the range of possible outcomes (and possibly the degree of competition among buyers). Specific considerations for each of the major holding companies follow:
•Publicis still appears a more likely buyer than a seller. 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 towards gaining scale. Towards 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.
•Omnicom is not clearly a buyer of anything other than its own stock, but it won’t likely be a willing seller. The most obvious path for Omnicom is business as usual. This means a refocus on capital returns through buy-backs (and we would expect a significant one given the absence of buy-backs since the merger was announced). However, to the extent that the company still wants scale, the natural fit among the holding companies would be IPG.
•Interpublic is likely a seller… at the right price. IPG has several unique assets including Mediabrands (valuable as scale for media agencies provides real operating benefits) and widely admired agencies such as Huge and R/GA. McCann would also be valuable to Dentsu and Havas. The question is not whether or not there will be bids, but at what price IPG would sell, especially considering it should have a strong year on an operating basis.
•WPP is unlikely to be a buyer (and not a seller, either). It seems unlikely that WPP will engage in major M&A with the holding companies. They have focused efforts more towards technology and data-based services in recent years, and seems unlikely to move from that path. As the most stable of the agencies, WPP may benefit in terms of organic growth.
•Havas appears more likely a buyer than a seller. Havas needs major corporate actions if it is to grow in line with peers mid- to long-term. Once again, IPG is the optimal candidate among the bigger holding companies if Havas can gain access to capital. However, there could yet be alternative routes towards differentiation for Havas (its management has suggested a focus on content might be more appealing).
•Dentsu remains a likely buyer. Dentsu’s global ambitions are in place, and having integrated Aegis it is better positioned now than it was at last year to pursue further scale, especially with creative agencies: it owns global micro-networks presently. IPG fills their needs well on this side especially, and to the extent that trading multiples in Japan provides relatively cheap capital, it may be positioned to outbid others.
Brian Wieser is a senior research analyst at Pivotal Research Group