Omnicom revenue grows, hurdles to Publicis merger remain

Worldwide revenue at Omnicom Group increased to $3.4 billion in the first quarter of 2014, up 3 percent from the equivalent quarter last year, the company said last Tuesday. US revenue increased 4 percent to $1.86 billion, while international was up 1.9 percent to $1.63 billion.

But net income for the first quarter of the year was $205.5 million, essentially unchanged from $205.1 million during the first quarter last year, according to Omnicom, which owns ad agencies including TBWA/Chiat/Day, BBDO, OMD, Fleishman-Hillard and Ketchum. Net income was affected by $7 million in pre-tax charges related to the company’s proposed merger with Publicis Groupe, which will create the world’s largest agency holding company.

Organic revenue, which excludes the effects of events such as acquisitions and disposals, increased 4.3 percen worldwide, growing 4.8 percent in North America, 2.3 percent in Europe, 5.7 percent in Asia Pacific, 7.4 percent in Latin America, and 6.6 percent in Africa and the Middle East.

Organic revenue also increased in each of Omnicom’s major disciplines, with specialty communications up 5.2 percent, advertising up 4.9 percent, customer relationship marketing up 4.2 percent and public relations up 1.2 percent.

Omnicom’s planned merger with Publicis, which was announced last summer, is taking longer than anticipated. After initially saying the deal could close as soon as the end of 2013, the companies now aren’t expecting approval until the third quarter of this year. Publicis chairman-CEO Maurice Levy said last week that he now expected the merger with Omnicom to close late in the third quarter, but he wasn’t willing to make a prediction.

“The transaction is moving slower than originally anticipated,” said Mr. Wren. “Given the proposed merger complexity and open issues, at this point it’s not practical to predict when the merger will close,” he added later in the call. He said there were three approval tracks still outstanding.

First, there’s antitrust approval needed from China. The holding companies received clearance in the US and EU, along with 12 other countries around the world. China is the only market remaining. On April 17, the companies entered phase three of a 60-day process set to end June 16. If they don’t receive antitrust approval from China by that time, the companies will need to resubmit the filings, said Wren. He cited Dentsu’s acquisition of Aegis as an example of the length of the process. “I believe Aegis was in phase three for 43-45 days or something along those lines.”

Second, the companies must settle “complex” tax agreements, specifically in France, where regulators must decide whether to treat the merger as a taxable event for shareholders. “If we cannot obtain these agreements, it could affect the likelihood of satisfaction of the conditions to closing of our deal,” Wren said.

Finally, the companies need to complete filings with the US Securities and Exchange Commission and the Authority for the Financial Markets in the Netherlands, where the merged entity will be based. “The financial-statement preparations and other disclosures are in the process,” Wren said.

There are scheduled meetings between the two groups in the next week to discuss “what we need to do and don’t need to do” for regulators, he said during the Q&A session of the call. “There is no Plan B. Those things are requirements to get to the closing.”

New business did not hit its standard $1 billion target in the quarter due to the Vodafone loss, according to Omnicom’s chief financial officer, Randall Weisenburger. WPP’s MEC won the business this month.

Europe is steadily improving. For the first time since Q1 of 2012, “we’ve seen positive organic growth in this region,” said Wren. Among larger regions, Germany was positive for the quarter while France continued to be negative. – Adage