Even the biggest advertising and PR Mad Men can’t spin the taxman
Ads giant Publicis tries to reassure investors over £23bn tie-up with Omnicom
Thursday 24 April 2014
The advertising pitch was that this would be the biggest merger in the history of Mad Men.
The French media group Publicis, owner of such agencies as Saatchi & Saatchi and Starcom MediaVest, said last July that it was planning to tie up with US rival Omnicom, the parent company of Abbott Mead Vickers and Adam & Eve/DDB, in a £23bn deal that would overtake Britain’s WPP in size and complete smoothly by March this year.
Alas, the lobbying campaign to persuade regulators and tax authorities to back this complex cross-border deal has been hit by delays, with mixed messages from the French and American camps that have raised doubts about whether the deal might collapse.
The latest twist came with a surprise statement, released at 11pm in Paris on Wednesday, in which Publicis admitted it was still seeking approval for the proposal from tax authorities in several countries, including France.
“In order for the merger to benefit from the deferred tax regime provided under tax rules, French tax authorities must provide a tax ruling on the merger,” said Publicis. “A request for a ruling has been made to French authorities.”
There was speculation that the boss of Publicis, Maurice Levy, was advised to make the statement a day after his counterpart at Omnicom, John Wren, alarmed investors when he admitted on Tuesday while presenting his first-quarter results call that British and Dutch regulators had yet to approve the merger. It was already known that the Chinese were holding up the deal.
Mr Levy was relatively upbeat during his own firm’s earnings presentation a week earlier, when analysts felt that he gave little sign of problems in Europe.
Publicis and Omnicom, which have each hired two law firms as advisers, will be conscious of the need to be open with investors for regulatory and legal reasons, said a well-placed source, who was surprised by the timing of the late-night statement from the Paris-based firm.
A key reason why the merger has run into problems is that Publicis and Omnicom want to register their merged business in the Netherlands and be tax-resident in the UK – both moves designed to make the deal “tax-free” and beneficial to investors.
One insider said that persuading regulators might be difficult because tax avoidance has shot up the political agenda in recent years.
Britain and the Netherlands could be uncomfortable if they felt the company was not going to have a meaningful operation in each of their countries. Publicis maintained in its statement that it was “confident” it could secure approval from tax authorities in London.
But Ian Whittaker, an analyst at Liberum Capital in London, said: “Reading between the lines, it looks like France is the issue and it makes things more complicated. It increases the uncertainty about whether the deal will go through.”
Mr Levy did appear anxious to defuse potential criticism of the deal in France. “The benefits realised in France continue to be taxed in that country,” insisted Publicis.
Mr Levy and Mr Wren have run their companies for 27 years and 17 years, respectively.
The merger would mean that a combined business would leapfrog WPP, the world’s biggest advertising group by revenues, which is run by their shared adversary, Sir Martin Sorrell.
WPP employs about 162,000 people in 3,000 offices across 110 countries.
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