Mosaic Group, IRI's partner in a venture that collects retail promotion and other data, filed for bankruptcy in Canada last month. And California investor Joseph Harrosh, who specializes in buying beaten-down stocks and whose last investment in IRI preceded a management shakeup, recently took a 5.2% stake in the company.
Both developments came shortly after P&G's announcement last month that it will move its scanner data business to VNU's ACNielsen Corp. in July. That news sent IRI stock down more than 50%, to an all-time low of $1.40, before rebounding more recently to about $1.60.
"Reports of our demise have been exaggerated," said Ed Kuehnle, group president-North America, IRI. He said the P&G loss represents less than 5%, or under $27.5 million, of IRI's annual revenue and that Mosaic Group's bankruptcy shouldn't affect Mosaic InfoForce, a U.S.-based venture that remained out of the bankruptcy. Mr. Kuehnle said he expects IRI's revenue to grow over time through existing and new clients.
But Mr. Harrosh, who reached a 5.2% stake in IRI five days after the P&G news, may bring pressure to sell IRI, said one analyst, who believes a financial buyer might be interested in a turnaround effort. "I used to believe the [consumer package-goods] industry needed two [scanner-data] players," the analyst said. "With the P&G decision, I may need to revisit that."
Some of Mr. Harrosh's investments have preceded management shakeups or sales of target companies. The last time Mr. Harrosh took a big stake in IRI was in 1998 following client losses and a plummeting stock price; Gian Fulgoni resigned as CEO a month later. At the time Mr. Fulgoni said that he was unaware of any pressure exerted by Mr. Harrosh, who sold his stock at a gain a few months before current Chairman-CEO Joseph Durrett was hired in early 1999.
Mike Samuels, chief financial officer for IRI in North America, said he's unaware of any pressure exerted by Mr. Harrosh then or now. Mr. Harrosh declined to comment.
Mosaic, which owns 51% of Mosaic InfoForce to IRI's 49%, is a Toronto-based marketing services outsourcing company that was hurt last year by unraveling deals with bankrupt Enron and WorldCom.
IRI's data costs, including what it pays InfoForce, were up 9.8% to $61.8 million in the U.S. through the first three quarters of 2002, despite the company's 2% decline in U.S. revenue to $309 million. But Mr. Kuehnle said InfoForce, which took in 2,400 employees outsourced by IRI, has exceeded expectations both for efficiency and revenue. Costs are up, he said, because of better pay, technology and services, including convenience and independent store coverage. InfoForce has been a growth driver, he said, as other IRI revenues slipped.
Mr. Samuels said Mosaic's bankruptcy poses no significant financial risk to IRI, which has invested $5 million in the venture and co-guarantees less than $3 million of its leases.
Other concerns aside, IRI was losing money and market share even before the P&G deal. Global revenue fell 0.5% to $413.5 million through September. By comparison, VNU said in November it expects full-year revenue for its marketing information unit, mostly made up of ACNielsen, to be up 7% for 2002. The Dutch company's advantage would be bigger without unfavorable currency effects.
IRI lost $1.4 million through the first nine months of 2002, but its losses would have deepened if $9.7 million in increased data costs were expensed rather than capitalized. IRI treats data procurement as a capital investment written off over 28 months.
But Mr. Kuehnle sees hope for a rebound. "We have some capacity that we can take advantage of in 2003 and 2004 as a result of the P&G decision, and we will aggressively be going after new business."