IPG's Roth trades blows with perception

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Already marketed to investors and the press in dauntless terms like "tough," "a man of conviction," and, most grittily, "a streetfighter," Interpublic Group of Cos. chairman-CEO Michael Roth last week did his first public sparring since taking on the top spot in January.

In a conference call to explain the company's current financial predicament, which includes a projected operating loss of $285 million, the former insurance industry chieftain slapped at the notion that the recent accounting issues could harm the company's agencies. "The tone of the businesses is good," he said.

He jabbed at downgrades in the company's credit rating by Standard and Poor's and Fitch's. `"'It's not material to us from a financial point of view."

And he sent a full-on roundhouse at the suggestions in the press that current reviews being conducted by major, long-standing clients General Motors Co. and L'Oreal could cripple Interpublic's media services offering. "I'm still amazed at the reliance placed in this industry on unsubstantiated and heavily hyped billings numbers as a measure of business vitality," he said.

By the end, it was clear that Mr. Roth's mano a mano with an opponent called perception was the main event on a card also featuring the not-unimportant matter of Interpublic's financial performance last year. Although Mr. Roth could not say when 2004 and early 2005 financial results will be available, the third-largest ad holding company also released some preliminary and unaudited numbers.

The company said 2004 revenue rose 5.8% to $6.2 billion, but it also projected an operating loss of $285 million, due in part to fees from professional services.

The results, which could be restated, were much less encouraging than recent annual reports filed by Interpublic's two larger rivals, Omnicom Group and WPP Group. Omnicom, owner of networks like DDB and BBDO, saw its revenue rise 13% to $9.7 billion. WPP, which owns Ogilvy & Mather and recently closed its deal for Grey, increased its revenue by 17% to $7.9 billion. Both companies also improved their profitability last year.

Interpublic's stock price climbed following the call and the news earned upgrades from analysts at Deutsche Bank and Robert W. Baird, but some observers were unconvinced that the company is finding its way out of the financial muck. Merrill Lynch analyst Lauren Rich Fine, pointing to another $35 million in earn-outs and lease expenses that was improperly accounted for, said in a research note: "We remain amazed at the number of issues surfacing and suspect this will take longer than [Wall Street] expects." She called the stock, "Still Too Hot to Handle."

Interpublic is currently in the midst of long turnaround mounted after a late-1990s, early 2000s acquisition spree gone bad, which along with the ad recession, pounded the company's stock price. Recent, major new business wins like Intel, Nokia and Computer Associates have been overshadowed by the potential for financial restatements as the company reviews accounting procedures for acquisitions made between 1996 and 2001 and GM's $3.5 billion media-buying account.

PLAYING DEFENSE

Those two pieces of news, which broke on March 11, sent the stock plunging and put Mr. Roth on the defensive in just his second month atop the company. Already chairman when he added the chief executive title, Mr. Roth's charge is to marshal the company forward, in part, by improving trouble spots like Interpublic's media offering and ad agency network Lowe Worldwide. Both have seen frenetic activity recently with new Lowe CEO Tony Wright implementing reorganization and the ouster of a pair of Interpublic media executives to make way for the realignment of network's Universal McCann, Initiative Worldwide and the negotiations unit Magna Global.

Mr. Roth, who nodded to both of those developments during the conference call, said he's spent the past few weeks meeting with clients and with the community of search consultants who have a crucial impact on agencies' brands. Both, he said, were supportive.

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