Omnicom Group Inc. (NYSE: OMC) and Publicis Groupe SA abandoned their $35 billion plan to create the world’s largest advertising company, saying they couldn’t overcome obstacles that slowed progress toward the deal’s completion.

The delays created uncertainty for shareholders, employees and customers, New York-based Omnicom and Paris-based Publicis said in a statement. Both companies’ boards voted unanimously to end the transaction, with no termination fees.

“We are divorcing before getting married,” Publicis chairman and chief executive Maurice Levy said today on a conference call. “We were not totally in agreement, to put it mildly, on how to share the responsibility.”

The all-stock deal, billed as a merger of equals, would have created a company with $23 billion in revenue and more financial resources to invest in new advertising technology. Ownership was to be split down the middle for the two sets of shareholders, and the CEOs would have jointly run the combined entity, they said when the transaction was announced in July.

Those plans bogged down when the boards couldn’t agree on key management roles or on integration from top to bottom. Specifically, Publicis wanted the right to name the chief financial officer for the combined group, Levy said today.

‘Fascinating’ Affair

Describing the merger as a “superb idea,” Levy said delays were increasing daily, which led to higher risks. The combination wouldn’t have achieved the benefits the companies planned, Levy said. Publicis isn’t exploring any other large acquisitions, he said.

“We lost momentum,” Levy said. “It’s disappointing we had this dream which is not going through.”

On an April 22 conference call, Omnicom CEO John Wren said the transaction was moving slower than anticipated, citing the complexity of regulatory approvals, including tax decisions in Europe.

“The root cause was almost certainly managerial and organizational matters rather than taxes or antitrust issues,” Brian Wieser, an analyst at Pivotal Research Group in New York, said in a research note. “The affair has been fascinating, if less so for shareholders who might have presumed that the endeavor was pursued under clearer terms.”

Publicis fell 0.6 percent to 60.31 euros at 2:52 p.m. in Paris, after rising as much as 2.8 percent earlier today. Omnicom dropped 2.7 percent to $64.40 in extended trading yesterday in New York, after the announcement.

Financial Scale

From the time the deal was announced, analysts expressed caution. Cost savings were less of a rationale for the transaction than gaining financial clout to invest in technology and buy ad media, Claudio Aspesi, an analyst at Sanford C. Bernstein, said at the time. He predicted the companies would lose clients to competitors in the short term.

“The ad agencies are now looking at significant investments in technology in the years to come,” Aspesi said then. “Financial scale for the first time will matter.”

U.S. advertising revenue is forecast to increase 6 percent to $168 billion this year, according to research released by Magna Global in April. Digital media advertising revenue, which grew 17 percent last year, is projected to pass television by 2018. In December, Magna projected global industry growth of 6.5 percent in 2014, to $521.6 billion.

Publicis, the third-largest advertising firm, owns Saatchi & Saatchi and Leo Burnett, and offered digital assets including Digitas, LBi International and Razorfish, as well as strength in emerging markets. Omnicom ranks second and is strongest in the U.S., with agencies including BBDO and TBWA.

Interpublic Group

The failed merger won’t slow down consolidation in the advertising industry, said Martin Sorrell, CEO of London-based WPP Plc, which will now remain the largest ad company worldwide. Japan’s Dentsu Inc. may bid for Interpublic Group of Cos. while Havas SA could be a target for Vivendi SA, Sorrell said in an interview today.

Wieser suggested Publicis may seek out Interpublic, while Havas and Dentsu are also likely to seek acquisitions. Omnicom and WPP would probably seek to stand pat, he said.

“Further consolidation is still likely, but specific shapes and timing are uncertain,” Wieser said. “Most paths lead towards an Interpublic acquisition, but then such an outcome was likely to happen previously.”

Havas, a smaller French rival partly-owned by billionaire Vincent Bollore, said in a statement that its scale allows the company to “adapt more efficiently to the new environment of the communications industry.”

Legal Acquirer?

Shusaku Kannan, a spokesman for Dentsu, said the company’s integration with London-based Aegis Group Plc, which it agreed to buy last year, is progressing smoothly and has added clients to its global portfolio.

In recent weeks, executives at Omnicom and Publicis adopted a more negative tone on the prospects of closing the merger. There were reports that the companies were at odds over which one was the legal acquirer and who would fill certain senior positions.

In an April 16 interview with EuroBusiness Media, Levy said he was confident the merger would close.

“Should the deal fall apart, we are serene and we have a very solid balance sheet, robust,” Levy said. “If we need to make some financial movement, share buybacks or whatever, we have the capabilities.”

WPP’s Sorrell said his company had begun to pick up clients and executives from the two rivals.

“Levy exercised his charm and seduced Wren into a transaction under the Arc de Triomphe,” Sorrell said. “The motions of this were more emotional than rational to knock WPP off its perch.”

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