Interpublic's stock sunk more than 30% on the news in record trading volume, falling below $10 a share to its lowest level since 1994 before edging back to close the week at $11.25 a share. Since Mr. Dooner took over as CEO less than two years ago, Interpublic stock has plummeted 73%, making it by far the worst performer among major ad-agency stocks. That's bad news for outside investors-and for employees who have stock and now-worthless stock options.
Pressure is mounting on Mr. Dooner, Exec VP-Chief Financial Officer Sean Orr and the board. "Every quarter, it's some other excuse," said Scott Black, a Boston money manager whose firm, Delphi Management, is a long-time Interpublic investor, with 350,000 shares. "You have to be honest that Dooner and Orr have not done the job."
The stock implosion raises another possibility: a buyout and breakup of the No. 2 ad agency company by a private-equity firm. A rival ad executive suggested a single-digit share price could make Interpublic ripe for takeover. While it might be difficult for another agency holding company to buy it because of antitrust issues, two executives at Interpublic rivals said corporate raiders might see the value of a broken-up Interpublic exceeding the price they'd have to pay. The market capitalization last week was $4.3 billion, compared with $11.1 billion for Omnicom Group and $8.1 billion for WPP Group. For now, such a deal is only speculation.
Given Interpublic's accounting and forecasting missteps, some Interpublic insiders and outsiders believe Mr. Orr is more vulnerable than Mr. Dooner. To be sure, many Interpublic executives, hurt by the slumping stock price and frustrated by the miscues, place considerable blame on Mr. Dooner.
But the CEO also has staunch supporters. "Dooner's a stud," said Deutsch Chairman-CEO Donny Deutsch, who sold his shop to Interpublic in November 2000. "When the book on Dooner is written, it will be one of a huge success story at IPG."
Another top Interpublic agency executive said there is internal speculation about Mr. Dooner's fate. "But this board is a mother. It's a strange board. Who knows what they'll do." Messrs. Dooner and Orr are the only inside board members. The seven outside board members did not return phone calls or declined to comment.
Wall Street at this point is not demanding that the board replace Mr. Dooner. One reason: A lack of obvious replacements. "They'll give him six months because I don't know anybody in this marketplace who could go in and replace him," said Christopher Dixon, managing director at UBS Warburg. One inside candidate might be Vice Chairman David Bell, former chairman-CEO of True North Communications, though most close observers see him as a remote possibility even if Mr. Dooner were to step down.
Mr. Dooner has at least one advantage over anyone else who might be considered for the role: close ties to key client Coca-Cola Co., stemming from Mr. Dooner's years running flagship McCann-Erickson. "Dooner is attached to a lot of revenue. No one is going to jeopardize that," said one Interpublic agency insider.
Mr. Dooner is highly regarded for his ability to run an agency group, deal with clients and land new business, but some observers question whether he has the financial acumen to manage a holding company. "I just don't think it's the job for him," said a senior executive at an Interpublic rival. Another rival executive said: "There's an unwritten law: Ad guys don't run networks," adding that people have Mr. Dooner in their sights out of jealousy, low stock price and a predisposition that holding companies should be run by numbers people. One of the executives suggested the board order Mr. Dooner back to McCann and bring in another CEO.
There would be a precedent: Omnicom's first CEO, Allen Rosenshine, in 1989 moved back to subsidiary BBDO Worldwide, publicly "demoting" himself to chairman-CEO of BBDO Worldwide, a job he felt better played to his strengths.
One of the rival executives suggested that the best candidate for CEO may be retired Chairman-CEO Philip H. Geier Jr., perhaps teamed with Eugene P. Beard, the retired vice chairman-finance and operations. Putting himself in the board's shoes, he added: "I'd bring back the old team and get them to deal with the issues." It's unlikely, though, that Mr. Dooner would fathom reporting again to Mr. Geier given the tension between the two men.
In last week's announcement, Interpublic said it expects third-quarter earnings of 8 cents to 10 cents a share, not the 28 cents projected by Wall Street, with full-year earnings of 85 cents to 90 cents, vs. the previous forecast of $1.25 to $1.35. Interpublic also said improper accounting of expenses will force it to restate earnings downward for the past five years by as much as $120 million before taxes-nearly double the $68.5 million earnings restatement it disclosed in August.
Interpublic attributed its new earning woes to "a recent significant deterioration" at its car racetracks in the United Kingdom and Hong Kong; "precipitous drops" in certain marketing services, with job cuts and severance expenses resulting from the falloff in corporate identity, in-store marketing and public relations; and "general revenue pressure" driven in part by "faltering economies in Latin America and Japan." The earnings restatement came after Interpublic found more accounting discrepancies at McCann-Erickson Europe.
In last week's announcement, Mr. Orr said: "We are taking appropriate actions to cut costs in light of recent developments," which raises the possibility of more job cuts. Interpublic's executive council was set to begin a regularly scheduled meeting starting Oct. 20 in Miami. Said one person who will attend: "A lot of decisions will be made."
Adding to Interpublic's woes, credit ratings downgrades by ratings companies could increase future financing costs. Standard & Poor's Oct. 18 downgraded Interpublic's $3 billion in long- and short-term debt.
Analysts were quick to say Interpublic's woes are specific to the company and not a sign of new weakness in the industry. They pointed out that while other holding companies share the weakness in marketing services, they don't have the same kind of sports-marketing operations.
Interpublic watchers debate how much blame should fall on Mr. Dooner, CEO since December 2000, and Mr. Orr, CFO since 1999, vs. their predecessors, Messrs. Geier and Beard.
Messrs. Geier, 67, and Beard, 66, rode Interpublic through the bull market of the `80s and `90s, using a rising stock price to buy growth and build a far-flung marketing communications conglomerate.
Messrs. Dooner, 54, and Orr, 48, have had to grapple with recession, a bear market and post-Enron accountability as they've tried to bring more order and tighter financial control to what they inherited.
"It's very hard to figure out how much [of Interpublic's tumult] is due to Dooner and how much is due to previous management," said a senior executive with a rival agency company. An Interpublic spokesman said Messrs. Dooner and Orr weren't available for comment. Mr. Geier was traveling, and Mr. Beard declined to comment.
Mr. Dooner can't be blamed for recession or, for that matter, racetracks, which former Interpublic executive Frank Lowe bought in 1999 and 2000 as part of an expansion into sports marketing when Mr. Geier was in charge. "Everybody was amazed when they went out and bought those racetracks. It made no sense whatsoever," a rival agency executive said. Several analysts speculated Interpublic will soon sell the tracks.
Mr. Dooner, though, is responsible for last year's purchase of True North, which quickly lost several key clients because of conflicts with other Interpublic clients. Analysts and competitors believe Mr. Dooner should have focused on managing Interpublic during a downturn rather than making a big acquisition so soon after taking the helm.
continuing to lag
Last year, Mr. Dooner staged a massive restructuring. This year, analysts note, Interpublic has seen improvement in new-business wins. Yet Interpublic continues to be a financial laggard-it expects revenue to fall 9% in 2002-and it continues to deliver investors unpleasant surprises.
In August, for example, Interpublic said the car-racing unit would reduce 2002 earnings by 4 cents a share. Last week, Interpublic said the unit's troubles actually would cut full-year earnings by 15 cents to 20 cents a share.
Similarly, in explaining to analysts in August how it had resolved accounting discrepancies at McCann Europe, Interpublic said a $68.5 million restatement of earnings was "the total charge" and that "accounting effects are final." Not quite. Upon further review, Interpublic last week said the charge will be up to $120 million.
with staff contributors