No shedding of units at 'new' Interpublic

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Agency holding companies salivating over the chance to snatch up shops cast off by Interpublic Group of Cos. will go hungry, according to Chairman-CEO John J. Dooner Jr.

Recent public comments by Interpublic Exec VP-Chief Financial Officer Sean Orr that the world's largest holding company would begin "pruning" its portfolio spurred speculation inside and outside the company over what units would be put up for sale. But Mr. Dooner insists those who try to read into Mr. Orr's remarks are off base, and that Interpublic doesn't intend to sell off any of its own holdings or those of the former True North Communications.

"There are no plans. Period. None," said Mr. Dooner. "At this time, we're not anticipating selling anything. What Sean was talking about was a comment about going forward and buying and how things change, and looking at what you might sell."

In fact, Lauren Rich Fine, an analyst with Merrill Lynch & Co., said that a $300 million accounting charge that Interpublic will take covers a writedown of goodwill and restructuring costs, rather than divestiture.

Mr. Dooner has made the rounds in the past week with agency heads to gather input for possible combinations of the "new Interpublic" following its completion of the True North acquisition June 19. His lieutenants, meanwhile, are crunching numbers, plotting synergies and assessing potential client fallout for every possible move on the chessboard, according to executives close to the discussions. (AA, June 18) That helped fuel speculation that Interpublic could be willing to pare units that did not fit into whatever new structure is established.

Since Mr. Orr's comments, speculation has swirled about a number of agencies considered vulnerable. One trying to set the record straight is Jack Morton Worldwide, New York, identified in the press as a sale target. "I can say unequivocally that we have no concern about being sold," said Laura Shuler, exec VP.

Several CEOs within the Interpublic family refused to comment on any possible plans after Mr. Dooner issued a strong gag order to agency chiefs. However, another high-ranking Interpublic official did say that while selling off some units later in the future isn't out of the question, it seems unlikely any significant sale would occur this year.

"When you have [stock-to-stock] pooling, you can't sell anything on either side for a couple of years," the Interpublic executive said. "So I don't know that anything can happen right now. Maybe there's a two-to-three man shop that might want to buy themselves back. But any real selling can't happen for a while."

In stock-to-stock pooling, True North was restricted by the Financial Accounting Standards Board from divesting itself of a large segment of assets prior to the merger. Now, Interpublic is restricted by the same regulations from selling any major assets it acquired from True North within two years of the date of acquisition. "That's why we know the big ones won't be sold," said Alexia Quadrani, an analyst with Bear Stearns in New York. "Beyond that, a lot of the really small firms fall beneath the radar."

Initial plans for the restructuring involve grouping Interpublic's units into three "supergroups." Names for those silos under consideration are the Partnership, WorldGroup and True North. A fourth group, tentatively titled the Advanced Marketing Communications group, would house specialty marketing shops like Jack Morton Worldwide. Some of the latest scenarios, according to executives close to the company, include:

* True North's BSMG Worldwide and Interpublic's Weber Shandwick Worldwide merging into one powerhouse public relations firm, with BSMG President-CEO Harris Diamond as CEO of the combined company.

* Temerlin McClain leveraging local brand equity by changing its name to some variation of Temerlin McClain McCann.

* Bozell, New York, going under the Partnership and repositioning as a creative powerhouse. Some key accounts are to shift from smaller offices to Manhattan, according to executives with knowledge of the changes. First to move will be the $100 million Fujitsu account from the Minneapolis shop and the $80 million Tyco International business from Kamstra, Boston, taking Bozell New York's billings over the $1 billion mark. Another executive said Bozell's office in Omaha may close.

Any moves, analysts agree, must be done with an eye toward addressing Interpublic's falling stock price. Interpublic's stock peaked at $47.43 a share earlier this year and hit $26.99-its lowest point since 1998-on June 25, the first day of trading after the merger closed.

Interpublic made 210 acquisitions in the last three years at a cost of nearly $3 billion. Except for poking its head above $45 a share twice since Mr. Dooner was announced as former Chairman Philip Geier's successor in March 2000, its stock has continued to drop. "Even though [the stock drop] came on my watch," Mr. Dooner said with a laugh, "I don't have anything against acquisitions as a strategy." In fact, Interpublic plans to continue its aggressive buying spree, although Mr. Dooner said organic growth will remain a priority.

"The role acquisitions play can mean as much as 25% of your growth," Mr. Dooner said. "If you look at organic growth, it's under attack because of some of the worldwide slowdown in our sector. [Acquisi- tions] aren't a negative as part of our strategy."

Contributing: Cara Beardi, Jean Halliday, Laura Petrecca and Laurel Wentz

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