The breakup of similarly large and complex transnational mergers, for instance French aviation giant Airbus's now-cancelled merger effort with BAE Aerospace (BAESY), have proven an opportunity for investors as embarrassed c-suites rededicate to shareholder returns and prudent corporate investment.
Signs already indicate that Omnicom may be moving in a positive direction just hours after announcing it had ended its nine-month long merger effort with Publicis, a highly embarrassing move to be sure.
Omnicom had suspended planned share repurchases after announcing the proposes tie-up with Paris-based Publicis in July 2013.
"We now have some catching up to do," CEO John Wren said of Omnicom's share buyback activity on a conference call with the media and investors Friday. In the wake of Omnicom's July merger announcement, the company accrued over $1 billion in its corporate bank account. Expect that cash to be returned to shareholders by way of share repurchases as soon as next week.
Commentary also indicates Omnicom may try to give shareholders a little extra, an unsurprising move in the wake of Friday's merger fallout. The company appears willing to stretch buybacks to whatever its investment grade credit ratings can handle.
Omnicom believes it can raise about $1 billion in debt to finance buybacks, adding to share repurchases conducted with the $1.2 billion that's swelled to the company's bank account since the third quarter of 2013.
A large buyback would be similar to how Airbus and BAE Aerospace recovered from their disastrous foray at a trans-national aviation deal that might have created a European champion to compete more aggressively against Boeing (BA).
Airbus, shortly after ending merger efforts with BAE Aerospace, launched a dramatic buyback campaign, repurchasing about 15% of the company's outstanding stock. The company also simplified its board structure, untangling various stakes held in the company from European conglomerates like Lagadere and Daimler.
Under CEO Tom Enders, Airbus then re-dedicated to international markets such as the U.S., where it had struggled to grow in the past. Shares have performed strongly since Airbus's deal with BAE Systems collapsed. BAE Aerospace also relied upon share buyback and dividends to recover from the divorce.
Similarly, the failed merger effort at Omnicom may be the punch in the gut that drives improved improved execution throughout the company, especially since the company confirmed it spent $50 million-to-$60 million of shareholder money on advice in the merger effort.
Bottom Line: Omnicom shareholders may see a boost from the company's break with Publicis. Buybacks may support Omnicom stock, meanwhile, divorce may be better than a messy marriage.
-- Written by Antoine Gara in New York