FORTUNE — Maybe it just wasn’t meant to be.
On Thursday evening, Publicis and Omnicom (OMC) called off a merger that the two advertising giants inked last summer. The deal was announced at the beginning of a wave of such announcements in the middle of last year. And at a proposed $35 billion, it was going to be one of the largest.
And it has continued. Recently, drug company Pfizer (PFE) offered $101 billion to buy rival AstraZeneca (AZN). AstraZeneca said no thanks, but even unwillingness hasn’t stopped mergers this go around. Just ask Men’s Wearhouse (MW) and Jos. A. Banks (JOSB), which finally struck a deal after a back and forth that included claims of cronyism. So far this year, $1.3 trillion in deals have been announced globally, the strongest start for corporate combinations since 2007, according to research firm Dealogic.
The Publicis and Omnicom deal didn’t get the merger wave started, but it certainly gave it momentum. CEOs are not immune to groupthink. Neither are investors, who generally cheer mergers, though not apparently this year. The market is mostly flat in 2014, even as executives continue to get hitched.
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There are two different ways to explain why mergers happen. The first is that companies pair up for strategic reasons. The two companies sell complimentary products. Together, they say, they will be able to serve customers better, or make better products. One plus one will equal three, or more like 10 if Wall Street is telling the story. Or perhaps the two companies face some threat, say the Internet, and they need to grow bigger to survive. This is called the merger of necessity.
The second explanation for mergers is that it is all about CEO greed. Most studies show that, despite pay for performance policies and the existence of executive compensation committees, the biggest determinant of executive compensation is how much investors think a company is worth. One of the easiest ways to push up your market cap is to do a deal. Of course, to really benefit, you have to end up as the CEO at the end of the combination, which is what the haggling is really about. So, in this vision of the world, CEOs are constantly looking for deals that they can justify as strategic but are all about getting a bigger paycheck.
There is often a third justification for deals, and that’s cost cutting. But you could argue that CEOs are only looking to cut costs in their businesses so that they can free up bucks to pay themselves more. So if you are cynical — and if you picked the second explanation, you are — then you can just lump explanations two and three together.
It’s likely that all merger waves contain some of both of these kinds of deals — and you just hope it is more the first than the second. But make no mistake, some merger waves are driven more by greed than good business.
When the Publicis and Omnicom combination was announced last year, it was clearly pitched as being in the first category of mergers. The CEOs of the two companies, Maurice Levy of Publicis and John Wren of Omnicom, said that technology was changing the business of advertising. Getting clients to spend money was less about the pitches you see in “Mad Men,” and more about harnessing big data. The only way to compete with Google and others was to grow bigger.
Now, the merger is off. Based on their earlier statements, you would expect Levy and Wren to say this is horrible news for the two companies. Here’s Levy after the merger was called off: “We will grow even faster.”
Wait, what?
So what doomed the merger? It appears that they couldn’t agree on who would run the place.
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It was supposed to be a merger of equals, but one company had to be the acquirer for accounting reasons. And while Levy and Wren pledged to split the CEO job, you couldn’t have two C-suite executives all the way down the chain of command. One CEO had to get the management team. And that, in the end, would decide who ended up being the full CEO in a few years.
Levy, who is older, was supposed to give up the job, but he wasn’t willing to let Wren’s CFO take over the No. 2 position at the company. And now the deal is off, which makes the justification for the merger seem like it was actually more greed than good business.
And if that the case, you have to ask, what kind of a merger wave are we actually in? Are the latest crop of deals really good for the economy and the market? The Pfizer-AstraZeneca deal will create a pharmaceutical powerhouse with massive R&D capabilities. But everyone seems to have concluded that the main thrust is all about avoiding taxes. We have seen more and more deals that seem to be driven by a desire to pay Uncle Sam less.
The good news is that investors are not fooled, and perhaps that’s why the market isn’t up this year. The bad news is that doesn’t appear to be stopping CEOs from searching for ways to boost their paychecks.
