Are Omnicom and Publicis Laying Grounds for a Divorce?

Wren’s statements to industry analysts last week represented the latest volley between him and Publicis CEO Maurice Lévy, who have been caught up in a game of verbal ping-pong. The remarks put pressure on Lévy 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, Lévy 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 Lévy 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.” And while the structure of Publicis Omnicom Group is 50/50, ultimately Wren becomes CEO. Nevertheless, Lévy, bristling at perceived lame-duck status, is already suggesting he may stay on for an additional two years, according to sources. New York-based Omnicom CFO Randy Weisenburger, meanwhile, has been widely favored to be named CFO. To some, it feels like déjà vu. When Publicis’ joint venture with what was then True North’s FCB in the 1990s collapsed, blame was laid on a power struggle for control between Lévy and his American counterparts.

Not withstanding the tax and regulatory hurdles, the companies may have another opening for walking away. Publicis, in its 2013 annual report, which came out two weeks ago, said that among the reasons either company could terminate the deal is if it isn’t possible to complete it before July 27, 2014. Publicis, in the same report, indicated that the deadline can be extended to Jan. 27, 2015, although it didn’t specify if that had happened. Publicis didn’t respond to inquiries, and Omnicom declined to comment.

For now, the merger delay has put on hold Omnicom’s stock buyback program, which the company is eager to resume, and reportedly is slowing the highly acquisitive Publicis’ deal making.

The current chilly public posturing between the two companies contrasts starkly with the chummy unveiling last summer of their plan to create the world’s largest marketing communications company, at $23 billion in revenue. Observers also noted how unusual it was for Omnicom general counsel Mike O’Brien to be on the call where Wren raised the tax hurdle. One source echoed a growing sentiment around tax residency: “It’s feeling a little bit like a beard.” The source added, “I think they’re just laying pipe in case they have to blow it up.”