Of course, Interpublic Group of Cos. isn't on the block, but Advertising Age couldn't resist taking a look at what the holding company could fetch in whole or in parts, and just who might be interested in rummaging through Chairman-CEO Michael Roth's garage.
And why not? An Interpublic sale would be record-breaking, surpassing the $4.7 billion WPP paid for Young & Rubicam near the peak of the market in 2000. The holding company's current value is $5.8 billion (the enterprise value, or market cap plus debt and preferred stock minus cash). Ad Age's analysis shows the parts are worth $6.3 billion, or $12.36 a share after factoring in debt, preferred stock and cash. That's not too much higher than the current stock price at $11 a share, so financial returns from a sale or breakup could be limited.
There are scenarios that could break up the portfolio. Most intriguing: Take flagship McCann Worldgroup, add in a few other prized units such as Draft, and spin off the enterprise to shareholders.
The new McCann, representing more than half of Interpublic, on Day 1 would be the No. 4 ad firm with the reputation and resources to compete against Omnicom Group, WPP Group and Publicis Groupe. Unshackled, McCann's stock over time could climb to the levels of its rivals (assuming that McCann performs and that it has fixed its accounting problems).
In this scenario, Interpublic would keep the rest of its assets, some good and a lot bad, and let the market figure out a solution-fix the shops, merge or purge, sink or swim.
Bolstering the idea of a breakup is the fact that there is no obvious buyer-rival or financial firm-for the whole Interpublic, unless someone such as Havas Chairman and financier Vincent Bollore gets a hankering to swallow a whale.
The idea of an Interpublic sale may not be so far-fetched. Pressure is building on the embattled holding company to take radical action, including a sale of parts or the whole. Frustrated shareholders, in fact, will get a vote on the issue, now that the Securities and Exchange Commission rejected Interpublic's argument to keep a non-binding referendum to "arrange for a prompt sale" off next month's proxy for the 2005 annual meeting.
Still turning around
Interpublic in July debunked the idea of a sale when Ad Age first disclosed the referendum proposed by shareholder activist Charles Miller, a Great Neck, N.Y., psychologist. Its full statement at the time: "Management is committed to maximizing shareholder value. The best way to do this is to improve operating performance, not sell when the stock is near historic lows."
The company reaffirmed the view in a Sept. 23 statement to Ad Age: "Our primary responsibility is to enhance shareholder value, and we regularly review all options that might achieve this end. We are in the midst of a turnaround. Therefore in order to maximize shareholder value, our best course of action continues to be resolving financial reporting issues and improving operating performance by focusing on key assets and resources -not selling the company or its parts."
Calculating prices for an Interpublic garage sale isn't easy given its tardy income statements, limited disclosure on performance of individual units and questions of how accounting and operating woes would affect values if all or parts of the holding company went on the block.
Merrill Lynch analyst Lauren Rich Fine concluded in a report last week that Interpublic cannot be sold at a price above or equal to its current price. "We do not believe there is a potential buyer for the whole company," she said. "We [also] believe it would be imprudent to sell individual businesses ... Interpublic could be disadvantaged by offering less marketing-services capabilities than its peers."
It also wouldn't be easy to divvy up Interpublic's $2.3 billion debt. Interpublic's problems with financial controls, meanwhile, arose because of weak and incompatible accounting systems at some units, so divorcing an agency from the parent doesn't necessarily put an end to accounting questions.
The ad world will get a closer look later this week when the holding company files its first financial reports in nearly a year. The numbers won't be pretty. There's also the issue of its admission this month that rogue employees had falsified records and misappropriated assets, and the overhang of an ongoing SEC inquiry.
Setting aside the accounting mess, Interpublic faces a fundamental problem: It was performing badly before its bookkeeping fiasco came to light three years ago. As the ad-market recovery took hold in 2002, Interpublic's stock plummeted that year from $35 to $11-and the bulk of the drop occurred before the company disclosed accounting troubles.