ADVERTISING: At the end of April 2014, Sir Martin Sorrell, CEO of the world’s largest advertising conglomerate WPP Group, became the best paid boss of a FTSE 100 company in the UK. Despite his company almost losing the corporate crown in global advertising.
Sorrell had earned £29.8m in 2013, a 70% increase from the year before. About 75% of his reward came from company shares, thanks to the group’s stellar performance.
Yet, during 2013, the UK FTSE stock exchange and the global advertising industries panicked and had become unnerved at the prospect of WPP losing its No.1 position. Its No.2 and No.3 competitors, Omnicom Media Group and Publicis, had agreed to merge to create an even larger multinational called Publicis Omnicom Group (POG).
The new partners were confident the necessary corporate, legal and tax changes would have been completed this year, toppling WPP from the top spot. But, on 9 May, the proposed marriage fell through. Legal, tax and other professional-advice services are reported to have cost $60m combine – for an effort that came to nothing.
What should creative producers and service providers thinking of forming radical mergers learn from this experience?
1 Agree on the terms of the merger in advance. Despite claiming it was a 50-50 “merger of equals”, it turns out that was not true. Publicis claims Omnicom wanted its CFO and general counsel, both very powerful positions, to be the ones used at POG. Publicis said it felt misled and abused.
2 When consolidation is inevitable in an industry, the corporate response should appear to look strategic, not emotional. The planned union was in response to a modern-day crisis in advertising: there are too many agency players promising advertisers the same quality service.
3 Overcoming obstacles should not be the main reason for disrupting your own business; battles must be chosen carefully. Apparently, building a super ad-agency group like POG would have given it the resources to negotiate with advertising-funded search-engine goliath Google and social-media giant Facebook.
4 Carry out research into how all regulators will respond first before going public with the plan. POG’s ambitions were tripped up by conflicting tax laws in certain countries like France, the Netherlands and the UK. It also had not received the blessing of anti-trust officials in a mega market like China.
5 Avoid a breakdown in employees’ morale. The delay in the merger’s completion created confidence issues internally at Omnicom and Publicis. Some of their best creative, tech and management executives could not handle the uncertainty and started jumping ship to rival agencies.
6 Trial partnerships on projects should have been attempted again and again beforehand. The potential clash of business cultures at two competing companies (and until the merger was completed) from two very different countries was high.
7 Clarifying which senior executives would be responsible for the sensitive divisions of creativity, technology, and digital media should have been thought through and agreed by the deal-makers first.
As London’s The Guardian newspaper reported on the day the POG deal disintegrated, WPP must have been relieved: “While the news did not give WPP’s shares a significant boost…, the company has seen its stock price rise about 10% since the merger was announced. ‘(Rival WPP’s) Sorrell will no doubt be sporting a broad smile; this outcome is almost a result he could only have dreamed of,’ said David Reynolds, an analyst at Jefferies. ‘Two major competitors distracted for the best part of a year and then unable to execute, what a result.’”