Interpublic, Omnicom keep '02 spending under control

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Two of the largest agency holding companies spent 2002 in a fairly conservative way, according to reports submitted to federal regulators.

In 10-K annual reports filed with the Securities and Exchange Commission, Omnicom Group and Interpublic Group of Cos. disclosed they spent less on acquisitions in 2002 than in previous years, but spent more paying for their past acquisitions. Both companies either cut staff or held employee counts at the same levels .

Interpublic spent only $54.1 million on 11 acquisitions during 2002, a sharp drop after spending $1.7 billion in 2001 acquiring 20 companies. That 2001 total included $1.6 billion in stock paid for True North Communications. The payments don't include $240.1 million in payments on previous acquisitions, up from $228.9 million in 2001.

Omnicom spent less, but bought more in 2002, and spent more paying off past acquisitions. The company spent $680.1 million on 40 acquisitions during 2002, down from $844.7 million on 39 acquisitions in 2001. But the $680.1 million includes $324.8 million in earn-out payments from acquisitions done in previous years, up from $156.8 million in 2001.

Among the acquisitions, Omnicom disclosed the December 2002 buyback of interactive agency Organic from Seneca Investments cost $106.2 million. Omnicom acquired full ownership in exchange for $99 million of its preferred stock in Seneca and assuming $7.2 million in Organic's liabilities.

SENECA WOES

Seneca, an interactive services holding company, was formed by investment group Pegasus Investors II in 2001, after Omnicom traded its stakes in 16 online shops for preferred stock in Seneca. The deal was a source of controversy, after a Wall Street Journal article speculated the partnership allowed Omnicom to avoid writing off losses on its Internet investments.

Analysts noted there were no surprises in Interpublic's 10-K, thanks to several interim filings to restate past years' earnings, the latest in mid-March. But Omnicom's 10-K should help its stock, according to David Doft, advertising analyst at CIBC World Markets, who noted investorsmay see a "clean 10K as an indication that [Omnicom's] accounting questions are behind them."

Both Interpublic and Omnicom updated the legal activities surrounding allegations of questionable accounting that arose during 2002. Omnicom noted it has two shareholder suits related to the accounting of the Seneca deal pending in state and federal courts in New York, while Interpublic has actions related to its recent restatement of earnings for 1997 through 2002 pending in New York, Illinois and Delaware. Interpublic also noted the Internal Revenue Service is auditing tax returns for 1994 through 1996 and has indicated it plans to challenge some tax positions which could lead Interpublic to owe back taxes.

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