Elliott Management Corp. has amassed a new activist stake in Interpublic Group of Cos. and is seeking talks with management and the board to maximize shareholder value.
The hedge fund has the equivalent of a 6.7% stake in Interpublic through shares and options, according to a regulatory filing today. Elliott disclosed it took the stake because it views the New York-based company as undervalued. Elliott plans to push Interpublic to try and sell itself to another advertising company after earlier rebuffing merger approaches from competitors, according to a person familiar with the matter.
Since Michael Roth, 68, was named CEO in 2005, Interpublic shares have gained about 50%, trailing the 66% gain of the Standard & Poor's 500 Index. Interpublic's 2013 operating margin of 8.4% also fell short of rivals, such as WPP at 15%, Publicis Groupe at 15% and Omnicom Group at 13%, according to data compiled by Bloomberg.
Elliott has held talks with rival advertising groups that want to engage in acquisition talks with Interpublic and are confident a combination can improve margins, said the person, who asked not to be identified because the discussions are private.
"Without knowing the specific motives behind Elliott, there is a lot of underlying value in Interpublic Group that the market has not fully appreciated," said Brian Wieser, an analyst at Pivotal Research Group in New York. "The inevitability of consolidation -- which would presumably feature Interpublic Group being sold at some point -- has become increasingly understood."
Mr. Wieser, who recommends buying Interpublic shares, added that a deal could still take years to come together.
Tom Cunningham, a spokesman for Interpublic, didn't immediately respond to a phone call or e-mail seeking comment on Elliott's investment. Elliot Sloane, an outside spokesman for Elliott, declined to comment beyond the filing.
Interpublic has been speculated as a takeover target. After the $35 billion merger of Omnicom and Publicis to create the world's largest advertising company fell apart earlier this year, WPP's CEO Martin Sorrell said consolidation won't slow down. He said that Interpublic may be a target for Japan's Dentsu Inc.
$137.8B U.S. ad spend for top 200 advertisers
"Dentsu would certainly be the most likely, based on business fit and geographic fit," Mr. Wieser said. "They would benefit substantially. They actively want to diversify outside of Japan."
Publicis or Omnicom could also be interested suitors, Mr. Wieser said. Shusaku Kannan, a representative for Tokyo-based Dentsu, couldn't immediately be reached for comment outside normal business hours. Representatives for Publicis and Omnicom also couldn't immediately be reached.
Shares of Interpublic rose 0.1% to $19.87 at 10:43 a.m. in New York, giving the company a market value of about $8.4 billion. The shares earlier rose as high as $20.37, the highest intraday price since August 2002. The stock had gained 12% this year through yesterday, while the Bloomberg World Advertising Index fell 4%.
Advertising companies are seeking to increase scale to strengthen negotiating clout for better ad rates for their clients across broadcasters, the Internet and in print. They are also trying to better compete against the growing might of Silicon Valley companies such as Google Inc. and Facebook Inc.
Following last year's announcement that Publicis and Omnicom planned to merge, Mr. Roth said in an internal memo to employees that "as this weekend's surprising news shows, there's no telling what might take place, but we don't see the need for major M&A to keep delivering on our plan to move Interpublic forward."
The advertising company is the latest target for New York- based Elliott, which has been pressing for a breakup of EMC Corp., a sale of Riverbed Technology and earlier this year pushed through changes at Juniper Networks, including cost cuts and a buyback.
Founded by Paul Singer in 1977, Elliott is known for taking positions in distressed companies, including Enron Corp., and the debt of nations including Argentina and Peru. One technique Elliott has repeated: making a takeover offer for a targeted company to flush out higher-paying buyers.
~ Bloomberg News ~