Magazine article ADWEEK

Suddenly, Merger Obstacles Loom Large: By Stressing Tax Residency Issue and China Regulatory Hurdles, Are Omnicom and Publicis Groupe Laying Grounds for a Divorce?

Magazine article ADWEEK

Suddenly, Merger Obstacles Loom Large: By Stressing Tax Residency Issue and China Regulatory Hurdles, Are Omnicom and Publicis Groupe Laying Grounds for a Divorce?

Article excerpt

By raising tax domicile issues related to its megamerger with Publicis Groupe, Omnicom Group has drawn a line in the sand. And in doing so, the American company has only fanned speculation of mounting marriage troubles, with CEO John Wren stressing to investors that there is no "Plan B" should the combined company fail to establish U.K. tax residency and incorporation in the Netherlands.

Wren's statements to industry analysts last week represented the latest volley between him and Publicis CEO Maurice Levy, who have been caught up in a game of verbal ping-pong. The remarks put pressure on Levy in stalled management structure negotiations, sources said, even as Omnicom's chief sets up investor expectations for a possible dissolution of the deal, which could carry a $500 million termination fee.

"Omnicom looks like it is trying to create a condition to get out of the merger. It's almost like they're looking for ideas to create plausible doubt," said Brian Wieser, a senior analyst at Pivotal Research Group.

If Wren views the tax domicile designation as a deal breaker, Levy as recently as April 17--in a conference call with industry analysts--focused only on French tax authorities, calling the situation a "normal process." (In a press release last week, Publicis rushed out a statement acknowledging the more complicated tax issues.)

The backdrop to the tax issue, however, may be more telling. Sources said that Wren and Levy have been butting heads since late last year over merger decisions. Also, integration meetings have been less frequent recently while holding company execs focus on the tax and Chinese regulatory hurdles.

One indication of the management stalemate is the companies' inability, after nine months, to file a required S-4 SEC document, identifying company officers and corporate organization. Typically those filings are made within a few months of a merger announcement.

In public, Publicis is quick to refer to the deal as a "merger of equals. …

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