Unforeseen tax issues have thrown the $35bn merger of Publicis and Omnicom into jeopardy, threatening to torpedo plans to create the world's largest advertising and communications company by revenues.
The deal, which was announced last July, is structured so that neither company nor their shareholders pay any tax related to the merger, but the groups have struggled to get the arrangement signed off by tax authorities in France, the Netherlands and the UK.
"There is no plan B. Those things are a requirement to get to a closing," John Wren, Omnicom's chief executive, said on Tuesday.
The French tax ruling approval process is pending and the groups have lodged joint applications with authorities in the Netherlands, where the combined company will be incorporated, and the UK, where it will be a tax resident. The Netherlands has been under pressure to stop allowing shell companies to use its tax regime.
Mr Wren said it was "not practical to say exactly when the transaction will close" given the complexity of the deal and the number of issues still to resolve. However, the company added "there was no reason to believe that the structure cannot be achieved".
Repeated delays have cast doubt on the Franco-US deal, which has been attacked by rivals who warn it will result in a series of client conflicts and cultural clashes. Shares in Omnicom were down 1.5 per cent by midday in New York, while Publicis shares closed down 0.7 per cent at €63.44 in Paris.
The air of caution surrounding the tie-up is a far cry from the jubilant pitch made nine months ago when Mr Wren and Maurice Lévy, chief executive of Publicis, signed the deal at Publicis's Paris headquarters overlooking the Arc de Triomphe. The executives promoted the deal as a merger of equals that would lead the way in a new era of technology-controlled media and marketing.
"Size will matter," Mr Levy told the Financial Times when the deal was announced. "What is true today is really not true tomorrow, and we have to be prepared for that."
At the time, executives were confident that the deal would close as soon as December – just five months. But the hold-up in winning tax approvals as well as obtaining antitrust clearance from China and working through issues with the US Securities and Exchange Commission have delayed that timeline.
Brian Wieser, an analyst with Pivotal Research, asked: "Can we say we have 100 per cent confidence that they are going to find a way to do a deal? No.
"To the extent that these issues were understood at the time of the merger and they assumed they wouldn't be problematic, clearly that was mistaken."
The failure to close the deal has also spooked some investors who fear the transaction may fall apart.
One investor who recently sold its position in Omnicom said that the deal was "a culture clash riddled with tax problems" and suggested that the chance of it completing was being viewed by many investors as only 50 per cent.
In the meantime, Publicis and Omnicom continue to operate separately, and their two bosses insist that they will be fine if they go it alone. In the first quarter of 2014, Publicis reported a 3.3 per cent increase in organic global revenue and Omnicom reported a 4.3 per cent increase in organic global revenue, compared to the same year-earlier period.
"We believe we are very well-positioned to compete in an increasingly complex dynamic landscape," said Mr Wren.
Mr Levy said last week: "That process will go to its end, and we will end up with a merger, a merger of equals that will give a formidable new player in the industry. And if by accident things don't happen, life is good for Publicis. Life is good whatever happens."
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