February 9, 2017 / 1:13 PM / a year ago

Publicis' Levy pulls plug on heir's kitchen sink

LONDON (Reuters Breakingviews) - Publicis boss Maurice Levy just messed up his successor’s kitchen sink. The one inalienable right of incoming chief executives is the scope to immediately take big provisions against past errors. Arthur Sadoun will find executing his own “kitchen-sinking” trickier.

The main headache is that Levy chose his penultimate earnings announcement as boss to announce a 1.4 billion euro writedown. It relates mostly to Publicis.Sapient, a network of digital specialists including SapientRazorfish, itself an amalgam covering businesses like $3.7 billion 2015 acquisition Sapient.

The problems are partly firm-specific. Integrating Sapient has proved trickier than expected, while Razorfish has had a string of management changes sparked by the death of its boss in 2015. The rest is market-driven. Publicis is now pencilling in slower digital growth in the coming years and a higher rate of investment to adapt to an environment that looks increasingly dominated by Google and Facebook. Total goodwill and intangible assets at Publicis.Sapient equal 4.9 billion euros, according to company data, so the writedown accounts for around 30 percent of the division’s cumulative total.

That’s cold comfort for anyone in adland expecting media agencies to grab an ever-expanding slice of the digital pie. It also raises questions over Publicis’ acquisition strategy. As Breakingviews wrote in November 2014, the French group’s offer for Sapient represented a whopping 72 percent premium to its three-month average closing price - about $1.5 billion in total, and not far off the value of Thursday’s writedown.

Levy hands over the reins of a company that’s lost major clients in recent years and saw year-on-year revenue shrink 2.5 percent in the final three months of 2016 adjusting for acquisitions and currency moves, compared to 3.6 percent growth at rival Omnicom. The key North America division - accounting for about half of revenue - saw revenue fall by almost 7 percent.

In other words Sadoun already has a tough job, even before his other key kitchen-sinking constraint: Levy is moving to the supervisory board as chairman. Having run the group for 30 years, he will find it hard not to look over his heir’s shoulder. Sadoun might wish Levy had saved him some bad news to announce.

On Twitter twitter.com/liamwardproud


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