IPG Stock Hits Two-Year Low

Plans to Sell $575 Million in New Stock

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LOS ANGELES (AdAge.com) -- Interpublic Group of Cos. stock slumped to a two-year low of $10.05 today, falling nearly 9% on heavy volume from its Oct. 17 close before recovering the majority of its losses. As of late morning, the stock traded at $10.71, down 2.7%.

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The stock drop appeared tied to the advertising holding company's announcement after the market closed Oct. 17 that it plans to sell up to $575 million in new convertible preferred stock to institutional investors. Interpublic said it would use the money "for general corporate purposes."

Diluting future earnings
Because the preferred stock could be converted in future years to common stock, it has the effect of diluting Interpublic's common shares. Merrill Lynch analyst Lauren Rich Fine, in a report this morning, said she expects the offering to dilute Interpublic's 2006 earnings per share by 25%, from 20 cents to 15 cents.

Interpublic intends to sell $500 million in preferred stock, and up to $75 million in additional stock if an over-allotment option is exercised.

'Tactical acquisitions'
Ms. Fine said she believes Interpublic "is shoring up its balance sheet," adding that some money "could be used for small tactical acquisitions."

The stock sale was to start and close today, signaling a quick move by Interpublic to add cash to its balance sheet.

In a conference call with investors late this morning, Interpublic Chairman-CEO Michael Roth said the company planned to use the money to pay for vendor credits, professional fees such as accounting and severance payments.

Mr. Roth offered no details about severance, but his comment suggests Interpublic is preparing for more job cuts.

Interpublic has been working to fix operating and accounting problems since it disclosed accounting errors in August 2002. The stock's low point since then came on March 7, 2003, when the stock bottomed at $7.20 a share. Today's low marked the lowest price since May 9, 2003, when shares traded at $9.45.

 

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