You can add html or text here


Failed bid

How can two world-renowned business leaders commit first-time-beginner mistakes ?

Told you so …

Some critics, journalists and experts from all walks of life relish in pointing out how accurately they had predicted a business failure many months before it occurred.  One year exactly after Publicis and Omnicom announced their plan to merge, I don’t take much pride in having spelt out at the time what would happen to their phantasm of becoming the world’s largest marketing services company:  John Wren and Maurice Levy’s proposed scheme contained all the misconceptions and glaring mistakes one can possibly make in a merger or acquisition.  A real beginners’ job.  It is actually quite shocking to see two internationally respected businessmen totally ignoring some of the basic rules they could have found in the introduction of “Mergers and Acquisitions for Dummies”, which is easily available from Amazon alongside my own “Perfect M&As – The Art of Business Integration”.

Visualising the end game

Before and After : Publicis's Maurice Levy, all smiles as the merger project was announced.
Before and After : Publicis’s Maurice Levy, all smiles as the merger project was announced.

The Publicis-Omnicom proposed deal did not rest on a compelling business case, and in the absence of a clear and credible statement of the benefits the merger will

provide, one cannot expect to have the drive and motivation to overcome the many hurdles and challenges that need to be resolved as two organisations blend to become one.  Who is the individual that will set the tone? What will the resulting merged company look and feel like considering the two companies each have a strong but very different culture?   How well will Wren and Levy agree on key decisions?  The answer to this last point became blatantly obvious: not being able to agree on the nomination of the CFO is just so basic one struggles to understand how Messrs Wren and Levy allowed themselves to reveal with such enthusiasm and optimism a plan for which the first elementary steps had not even been thought through.

By Omnicom’s chief executive’s own admission : “There was no clear finish line in sight”.  How is it conceivable that such senior and supposedly experienced business leaders could ignore the most basic prerequisites of a successful business integration?

Preparation, preparation, preparation

Maurice Levy has to recognize the glaring shortfalls of the Publicis - Omnicom merger plan
Maurice Levy has to recognize the glaring shortfalls of the Publicis – Omnicom merger plan

It will take a good autopsy of this failed merger to reveal how much (or how little) advice the two companies had requested and received and considered prior to announcing their merger plan to the world.  Was there really that little due diligence prior to the announcement, or did the two businessmen simply ignore any warning signs they might have been given? Were they blinded by the prospect and thrill of becoming the world’s number one agency, bigger, better and bolder than Sir Martin Sorrell’s WPP? When Publicis and Omnicom announced their intention to merge, my article referred to “The obsession with size”.  Was this finally just about two over-inflated egos, or was there truly a cogent business rationale which failed to materialise?

How is it that nobody had anticipated that tax considerations would invalidate the complex structure on which the proposed combined company was due to be set-up?  Last year, in writing “shareholders vote by raising their hand, but clients can vote with their feet”,  I was wondering how forcing fierce global rivals such as Coca-Cola/Pepsi, Nestlé/Mars or Microsoft/Google to deal with one combined agency would not run into regulatory problems or result in some of those key clients seeking other options.  Now it transpires that amidst the difficulties to keep the merger on track, talent and client retention also became a big challenge: is that at all surprising?

Maintaining focus

Any book or “how to” manual on M&A will tell you that one of the big challenges during the merger process is to manage the dual focus of keeping day-to-day business on track whilst maintaining the integration drive.  Publicis already had a few problems of its own to resolve prior to the merger announcement, and attempting a complex merger in that state is like covering rust with glossy paint that will not take long to peel off.  In the absence of clear succession plans in Publicis Maurice Levy had already postponed his retirement before the merger proposal was on his radar screen, so by what miracle would the key pieces of the puzzle all fall beautifully into place in a combined Publicis-Omnicom organisation if Publicis could not figure out how to organise itself as a stand-alone entity?

Predictably, the uncertainty and lack of unity of vision that rapidly emerged after the merger announcement proved a huge distraction to the business.  Now the engagement is over, and the bruised fiancée is licking her wounds.  Publicis’s shares have dropped 16% since the beginning of the year, wiping off EUR 1.8 billion of the company’s value, with a drop in net income and further margin erosion,  whilst Omnicom announces a healthy rise in revenue.

After such a poor performance, Maurice Levy had better return to his desk and thrash out a coherent succession plan to restore clarity within Publicis, as many shareholders will feel he has reached the end of his shelf-life.


A month of intense courtship ends in rejection

When Pfizer, the inventor of Viagra, announced on 28th April its interest in acquiring AstraZeneca,  the latter’s shares jumped by more than 14% and kept investors on the edge of their seats during a whole month as they watched the bid rise higher and higher, but not enough for AstraZeneca’s leadership to surrender to such courting.

Whereas AstraZeneca’s shares were worth £37.81 in mid-April, Pfizer’s £55.00 final offer was still deemed not attractive enough, and one may wonder what makes AstraZeneca’s boss Pascal Soriot so confident that his company is worth more than the 45% premium Pfizer was prepared to pay.  Now, it’s “game over”, this dramatic game of poker saw AstraZeneca’s shares climb to £43.28, and they have continued to hover within the £42.50 to £43.00 space since rejecting the Pfizer offer. 

So is this a realisation by investors that AstraZeneca is worth more than the market had rated until a month ago or, as would appear far more likely,  could this just be the consequence of Chairman Leif Johansson’s admission, after Pfizer had declared their £55.00 bid to be “final”, that a £58.85 bid might be considered?

Growth projections or bluff?

Worldwide, the levels of investment and effort in bioscience have reached dizzy heights, and major breakthroughs are expected that will revolutionise the treatment of cancer, diabetes, Alzheimer’s and other threatening illnesses.  In this race to find the Holy Grail, whoever is first in commercialising these revolutionary drugs wins the prize.  AstraZeneca have argued strongly that they are on the verge of releasing that breakthrough, particularly in the area of cancer treatments, but competitors such as Novartis, Merck or Roche are also in that race and it will be tough.

The dramatic escalation of Pfizer’s bids and AstraZeneca rebuffs has now placed self-inflicted pressure on the latter’s management; substantiating its self-assessed value assumes that AstraZeneca’s revenues will grow by 75% over the next eight years.  This will require not just one but several breakthrough drugs and those hopes could be dashed if competitors come up with similar drugs within that same timeframe.

Call in the politicians for some emotional debate

In retrospect, it is also possible that Pfizer may have chosen a bad time to launch its bid. Beyond the mere question of money (which in itself was not negligible as AstraZeneca proudly declined the industry’s largest ever deal), much of the debate will have focused on the future of bioscience and Britain’s role as a worldwide centre of excellence in that field.

Having that debate whilst European parliament and local elections in Britain were taking place gave politicians from every party a golden opportunity to voice their thoughts, each of them pledging to be defending the national interest.  This will have almost certainly boosted AstraZeneca’s confidence in its pursuit of continued independence.

Wait three months, or seek a less demanding bride?

Now that the courting has failed, British law requires a minimum three month wait before Pfizer is allowed to attempt luring AstraZeneca again.  How big will the diamond ring need to be this time?

Whereas many analysts are skeptical about AstraZeneca’s ability to achieve anything close to the very ambitious goals it has set itself to justify the high premium over its current share price, Pfizer’s offer of £ 55.00 assumes that such a bold plan could indeed be achieved, but then one should wonder how Pfizer could hope to generate even more value beyond that point to derive any benefit from this massive acquisition.

Once the current excitement and frustration have cooled off, Pfizer might be glad they have not over-stretched themselves in acquiring a major competitor at its maximum price.  If mergers and acquisitions are about creating value rather than just becoming the biggest guy in one’s industry, I think there could be some benefit in seeking out smaller pharmaceutical companies whose product pipeline could complement Pfizer’s declining R&D productivity and which could benefit from Pfizer’s scale and commercial presence: that would constitute a real win-win.

She loves me, she loves me not …

Several of AstraZeneca’s significant shareholders would have been happy to take the money and run when Pfizer offered them £ 55.00, cashing in today instead of waiting for value which is being promised to them in the future based on a very uncertain plan.  But human nature is such that no one can face the embarrassment of a U-turn, coming back on a “final offer” or saying “oh why not” after having said “no”.

Many analyst still expect Pfizer to come back to the negotiating table in some months from now. However if that does not occur, some powerful and very frustrated shareholders will be holding Pascal  Soriot to ransom in delivering his ambitious plans and revealing those miracle drugs we are being promised.  There could be difficult times ahead.

… in the meantime, the elections are over and bioscience has abruptly fallen off the radar screen of the politicians who only two weeks earlier were desperately arguing in favour or against the Pfizer deal in typical cacophony.  Maybe the three month cool-off period will do them some good too.