The share slide followed the unexpected resignation of Robert J. Callander from the board of directors one day after the company's May 21 annual meeting. Mr. Callander had headed the board's audit committee.
The exit, which Omnicom did not disclose until a Securities and Exchange Commission filing June 5, set off a wave of speculation. Investors, further stirred by reports The Wall Street Journal is preparing a story on Omnicom, saw the exit of Mr. Callander as a sign the company could face accounting issues.
Omnicom's stock price June 6 fell 6% to $75.52. Omnicom tried to halt the slide with a terse statement June 7 that it "knew of no corporate development that accounts for recent market activity in its stock." It also reaffirmed projections for 10% revenue and earnings growth in 2002.
But the stock continued to drop, closing the week down 15.8% at $72.69, with record volume of 9 million shares June 7. Since hitting a 52-week high of $97.35 in March, it has plummeted 25.2% even as the ad market shows signs of revival.
Three major brokerages recommended Omnicom as the stock fell last week. Ten of 11 analysts tallied by Bloomberg rate the stock a buy.
Bear, Stearns & Co. analyst Alexia Quadrani predicted the Journal story will "rehash" earlier news stories regarding Omnicom's organic-growth calculations and whether acquisitions inflate growth. In her report, she said that while Omnicom's method for calculating organic growth is less conservative than those used by Interpublic Group of Cos. or WPP Group, it is in a position to deliver above-par growth.
Organic growth has been an area of debate among shops since accounting rules do not spell out a single standard. Based on talks with Omnicom's management and the writer of the Journal story, Ms. Quadrani reaffirmed her "buy" rating.
Merrill Lynch & Co. upgraded Omnicom back to "strong buy" from "buy" a week after downgrading it based on lower growth expectations. In a June 7 report, First VP Lauren Rich Fine said that, thanks to investor "overreaction," the stock has now dropped back to an attractive price.
reaffirmed ` buy'
"In our discussions with management, we concluded that the resignation had more to do with Mr. Callander's prospective role at the company and likelihood that at age 72 he would not stand for re-election next year," said Ms. Fine's report.
Salomon Smith Barney analyst William Bird also reaffirmed his "buy" rating, calling Omnicom "the best stock idea across our universe of coverage." Mr. Bird noted that had Mr. Callander disagreed with Omnicom's accounting, the company would have been required to report that to the SEC. "If the article proves to be a great big nothing, we believe the stock will be back in the high $80's in a week," he concluded.
Omnicom has posted year-over-year higher earnings every quarter since 1994, wowing analysts and confounding rivals in what typically is a cyclical business.