The deal billed as a “merger of equals” had been challenged by battles over position and power, including difficulties in getting tax and other regulatory approvalspeople familiar with the matter have said.
In a joint statement, Publicis Chairman Maurice Lévy and Omnicom CEO John Wren said the “challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups.” The companies said it was a mutual decision.
The tie-up, announced with much fanfare in July and originally expected to close by the end of 2013, was designed to give the companies more heft in competing with deep-pocketed Silicon Valley giants like Google Inc., which have gotten a leg up on mining data about consumer habits.
But the combined impact of the various delays proved too much for the companies. “We thought we would be through this in six months and nine months later we still have a lot of complex time-consuming issues that because of different corporate cultures we haven’t been able to resolve,” said Mr. Wren in interview Thursday evening. “There was no finish line in sight and that created uncertainty.”
“For several weeks now, we realized that we were in a dead-end situation and that the best thing would be to turn back and focus again on our own plans,” Mr. Lévy said in an interview.
The megamerger would have created the world’s largest ad holding company by revenue, combining ad agencies such as BBDO, Saatchi & Saatchi, DDB, Leo Burnett and TBWA as well as public-relations firms including FleishmanHillard and Ketchum, and digital ad agencies DigitasLBi and Razorfish.
But it was a complex deal from the start. The companies had made clear it was to be a merger of equals, where the shareholders would each receive about 50% of the equity in the new company—Publicis Omnicom Group—and where the two CEOs would share the top job for 30 months from the closing.
At the same time, the merger entailed a combination of a French and an American company, with the new firm incorporated in the Netherlands and a U.K. company for tax purposes. Yet the operational headquarters would be split between France and the U.S.
And technically one company has to acquire the other, for accounting reasons. The two sides hadn’t agreed on which company would be the acquirer of the other, which held up filing of crucial paperwork with the U.S. Securities and Exchange Commission, said people familiar with the situation.
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Delays in obtaining regulatory approvals, particularly in China, also were a factor.
At the same time, relations between the two sides had severely frayed, people familiar with the situation have told The Wall Street Journal. Many of the disagreements stemmed largely from the two CEOs, Messrs. Wren and Lévy, one of the people familiar with the situation has said. The two sides had butted heads over issues including where the combined company would be based and which executives would fill top roles.
In particular the companies had been at loggerheads over who would fill the position of finance chief. Differences over the position were so stark that last November, Omnicom executives told an analyst in the U.S. that its CFO, Randy Weisenburger, would get the job while Publicis executives told another analyst its CFO, Jean-Michel Etienne, would get it, according to a person familiar with the situation.
Asked about personality clashes and the disagreements over senior roles, Mr. Wren said, “We both have strong personalities and we both have strong corporate cultures but there was no one factor.”
Mr. Lévy conceded that the question of how roles should be distributed among the groups was a point of disagreement. “We wanted to do a merger of equals but this principle in the end was not respected,” Mr. Lévy said.
Another issue that complicated the deal, one of the people said, was difficulties the two companies encountered in agreeing on ways to raise Omnicom’s profit margins closer to those of Publicis. For 2013, Publicis posted an operating margin of 16.5% compared with Omnicom’s 12.5%.
For the sake of their clients, the companies decided that walking away from the deal was the best course, people familiar with the situation said. Personnel issues alone weren’t a deal breaker, one of the people added.
“It became evident a few weeks ago that we were stuck in a one-way road and that the best thing would be to not go ahead with the merger,” said one of the people.
The companies said no termination fees would be payable by either side.
In recent weeks the companies have given starkly different messages about the status of the merger.
During a quarterly sales call with analysts in mid-April, Mr. Lévy said he thought the deal could close in the third quarter. A week later, Omnicom’s Mr. Wren said that he couldn’t predict when the deal would close because of its “complexity and open issues.”
This is one of the largest announced deals to later be called off.
For the French company, the merger with Omnicom would have helped solve a crucial succession issue. Publicis’s board in 2010 asked the now 72-year-old Mr. Lévy to extend his tenure as CEO, highlighting the struggle for the group to find a successor. He has headed Publicis for over 30 years.
Mr. Lévy said Publicis will stick to its existing strategy of boosting growth and margins and growing in digital, technology and big data. “We will go even faster,” he said.
Unlike Publicis, Omnicom hasn’t been as active acquiring digital companies but has focused more on building digital capabilities internally. The company is likely to continue down this path and put greater emphasis on its Big Data business.
In the interview, Mr. Wren said, “We are very bullish tonight about 2014 and where we are going.”
Still, both companies did cite that they needed this deal to better compete with Silicon Valley companies like Google. But the lack of a deal is likely to raise questions from investors as well as the industry about their “Plan B”s.
—Dana Cimilluca and Nathalie Tadena
contributed to this article.