01—Abstract
Summary
Summary of the 10-K filed February 12, 2014. Cited figures are marked; the original filing is the authoritative source.
Omnicom Group Inc. (NYSE: OMC) reported 2013 revenue of $14,584.5 milliona, up 2.6% from $14,219.4 million in 2012, with organic growth of 3.5%.
Operating income rose to $1,825.3 millionb from $1,804.2 million, while operating margin edged down to 12.5% from 12.7% because of $41.4 million of merger expenses tied to the pending Publicis combination. Net income attributable to Omnicom was $991.1 million, or $3.71 per diluted share, compared with $998.3 million, or $3.61, in 2012. Excluding the merger expenses, the filing states net income of $1,026.0 million and diluted EPS of $3.84.
The central investor issue is the Business Combination Agreement with Publicis Groupe S.A., signed July 27, 2013, under which both companies would merge into a new Dutch holding company, Publicis Omnicom Group. Omnicom shareholders would receive 0.813008 of a Publicis Omnicom Group share per Omnicom share, plus a $2.00c per share special cash dividend. The filing says completion is unlikely before the third quarter of 2014, requires two-thirds shareholder approval and regulatory clearances, and carries a $500 million termination fee payable to Publicis in some circumstances.
Omnicom suspended open-market share repurchases from the third quarter of 2013. A shareholder class action (In re Omnicom Group Inc. Shareholder Litigation) seeks to enjoin or rescind the deal; management believes it is without merit. Balance sheet and liquidity remained solid.
Cash and cash equivalents were $2,710.5 milliond at year-end, total debt was $4,039.7 million, and net debt was $1,311.0 million, down from $1,756.4 million. The company held a $2.5 billion Credit Agreement expiring October 12, 2016, with no borrowings outstanding.
Credit ratings were BBB+ (S&P) and Baa1 (Moody's). Management expects 2014 revenue to rise modestly, above weighted average nominal GDP growth in its major markets, excluding currency effects and the merger.
02—Key points
Key Highlights
- Revenue rose 2.6% to $14,584.5 million in 2013, with organic growth of 3.5%; the United States grew 2.8% and the United Kingdom 6.2%, while Euro markets grew 0.9%.
- Operating income was $1,825.3 million and operating margin was 12.5%, down from 12.7%, after $41.4 million of merger expenses; excluding those expenses, the filing states operating margin was 12.8%.
- Diluted net income per share was $3.71, up from $3.61, and the filing states $3.84 excluding net merger expenses.
- Under the Publicis Business Combination Agreement, each Omnicom share converts into 0.813008 of a Publicis Omnicom Group share, and Omnicom plans a $2.00 per share special cash dividend before the Omnicom Merger.
- A $500 million termination fee may be payable to Publicis in some circumstances if the Business Combination Agreement is terminated, and completion is unlikely before the third quarter of 2014.
- Net debt fell to $1,311.0 million from $1,756.4 million, and the $2.5 billion Credit Agreement was undrawn at year-end.
- Client concentration is moderate: the largest client was 2.7% of 2013 revenue and the top 100 clients were approximately 51%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 12, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $14.58B$14.22B | +2.6% |
| Operating Expenses | $12.76B$12.42B | +2.8% |
| Operating Income | $1.83B$1.80B | +1.2% |
| Interest Expense | $197.20M$179.70M | +9.7% |
| Net Income | $991.10M$998.30M | −0.7% |
| EPS (Basic) | $3.73$3.64 | +2.5% |
| EPS (Diluted) | $3.71$3.61 | +2.8% |
| Shares Outstanding (Basic) | 258.90M268.30M | −3.5% |
| Shares Outstanding (Diluted) | 260.40M270.00M | −3.6% |
05—Questions
Frequently Asked Questions
What is the Publicis transaction and what will shareholders receive?
Omnicom and Publicis Groupe S.A. agreed on July 27, 2013 to combine through a new Dutch holding company, Publicis Omnicom Group N.V. Each Publicis share will be exchanged for one Publicis Omnicom Group ordinary share. Each Omnicom common share will be converted into 0.813008 of a Publicis Omnicom Group share, plus cash in lieu of fractional shares, subject to adjustments. Omnicom also intends to pay a special cash dividend of $2.00 per share before the Omnicom Merger.
What conditions must be met before the deal closes?
The filing lists approval of the Business Combination Agreement and Omnicom Merger by two-thirds of Omnicom's outstanding common shares, two-thirds approval of the Publicis Merger by Publicis voting rights present at a meeting, a majority approval of the Publicis Transaction Dividend, requisite governmental and competition approvals, listing of the new shares on applicable exchanges, no prohibiting law or order, and no material adverse effect on either company. The filing states completion is unlikely before the third quarter of 2014.
What are the main risks to investors from the pending transaction?
Risks include failure to obtain approvals or complete the deal, a $500 million termination fee payable to Publicis in some circumstances, transaction costs that Omnicom remains liable for even if the deal is not completed, possible disruption to client, employee and supplier relationships, and diversion of management attention. A shareholder class action filed in New York seeks an injunction barring or rescinding the transaction. Management believes the suit is without merit and does not presently expect a material adverse effect.
How strong is Omnicom's balance sheet and liquidity?
At December 31, 2013, cash and cash equivalents were $2,710.5 million and total debt was $4,039.7 million, giving net debt of $1,311.0 million. The $2.5 billion Credit Agreement expires October 12, 2016 and had no borrowings or commercial paper outstanding. The company was in compliance with its covenants, with a Leverage Ratio of 1.9 times against a 3 times maximum and an Interest Coverage Ratio of 10.7 times against a 5 times minimum. Ratings were BBB+ from S&P and Baa1 from Moody's.
Why did Omnicom's operating margin decline in 2013?
Operating margin fell to 12.5% from 12.7% mainly because of $41.4 million of merger expenses, primarily professional fees, recorded in the second half of 2013. Salary and service costs rose 3.1%, while office and general expenses fell 0.7%. Excluding the merger expenses, the filing states operating margin would have been 12.8%, and Omnicom expects to incur additional merger expenses in 2014.
06—Continue