AD HOLDING COMPANY MODEL DEFENDED AT CONFERENCE

Comments Follow Recent Accounting and Stock Troubles

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NEW YORK (AdAge.com) -- Despite skidding stock prices, accounting questions and a weak advertising market in general, agency holding companies remain a valid model for the industry, executives said at an industry conference today.

"The model is not broken," said Paul Richardson, chief financial officer of WPP Group.

Building cooperation
Speaking at the CIBC World Markets' Advertising and Marketing Services Conference, Mr. Richardson said WPP's focus as a parent company is to build cooperation among its units, especially in media and specialized communications.

WPP's agency networks include J. Walter Thompson Co. and Young & Rubicam.

The recent accounting troubles at Interpublic Group of Cos. (parent of McCann-Erickson Worldwide, Lowe & Partners) and shareholder lawsuits against Interpublic and Omnicom Group ( BBDO Worldwide,

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DDB Worldwide) notwithstanding, the speakers said holding companies provide the integrated marketing platforms clients now require, and they can allow for economies of scale.

"I not only think holding companies are viable, they're necessary," said David Doft, advertising analyst at CIBC World Markets. The holding company structure allows public companies to deal with vendors more efficiently, which in turn produces returns for investors, he said.

Better management
"The problem is in managing the pieces. That's where IPG hiccuped," Mr. Doft said. He said investor Warren Buffett seemed to endorse the concept when he bought a stake in Omnicom last quarter. The so-called Oracle of Omaha did extensive due diligence on the company before Geico -- one of the holdings of his Berkshire Hathway fund -- acquired a 500,000 share block.

Not surprisingly, holding company executives defended the viability of their business model, even as the recent accounting stumbles at Interpublic have raised questions about the ability to manage multi-agency companies.

"This has nothing to do with the kind of company you are. ... It has to do with the management of the finance and the way things are counted," said Maurice Levy, chairman-CEO of Publicis Groupe. "It has nothing to do with the concept of a holding company, with the way it delivers service to the client."

No successful model
There is no single model for a successful holding company, Mr. Richardson said. Their success depends on how they perform their functions, whether as a hands-off financial entity or a structure to help networks work together, he explained.

"If it wasn't of value, we'd break it up," he said.

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