As the FT notes this morning the Publicis-Omnicom merger has failed. The French-US deal always looked to be tax driven. As the CEO of US partner Omnicom told the FT
the company had accumulated “an awful lot of cash”.
structured so neither company nor its shareholders would incur tax, but the groups faced challenges receiving approval from tax authorities in France, the Netherlands and the UK.As recently as April, the companies said there was no reason to believe that the deal structure could not be achieved.
Rumours began a while ago that suggested that this was not true and that the expected $80m in annual tax savings the merger had hoped for might not be delivered. From then on the deal seemed on the rocks.
There are lessons in this. As I have said before, tax cannot drive commercial logic. The US corporate tax system is corrosive, as I have also argued, as a result. And here a deal has floundered because a merger driven by tax greed, not commercial necessity or even imperative, has come unstuck.
I hope the markets take note. All those consider the Pfizer deal should smell the coffee.
It would be better still if the US did and took action to reform its tax system.
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Much more information here from Sir Martin Sorrell.
I am glad your last sentence has got to the essence of the international tax system.
I have made the point before about your previous blogs about international organizations which I regard as in the main talking shops and mostly exist to provide well paid employment for its members. The main focus should be the US system that needs to be concentrated on and campaigned upon.
I was once taught by a Harvard Business School professor who took the view that if two companies were fairly priced by the market, then the only rationale for a merger or acquisition would be any tax benefits from the merger.
If you believe that tax was the only reason then you are living in cloud cuckoo land. There was a lot more to the proposed merger than just tax as you would like us to believe.
You only have to read reports from properly informed journals and news organisations to find that the basic synergies were lacking, Chian would not approve, couldn’t agree on senior management and the French didn’t fancy being regarded as having been taken over.
As far as tax was concerned, the mutual agreement procedure was dragging on with Nethertlands and UK unable to reach consensus on the residence isssue.
In fact, the weakness of the transaction was that the parties and their management didn’t bother to do any due diligence on the tax implications before they started cracking open the champagne.