Agency Accounting: Omnicom legal woes could drag on for two years

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Even if Omnicom Group wins the shareholder lawsuits filed against it, the agency holding company could be tied up in motions and judgments anywhere from two months to two years.

It will take at least 60 days before the company finds out if a class-action suit will proceed. And it could take more than a year before a case goes to trial. In the meantime, Omnicom executives will be busy submitting documents and information during the discovery process.

Omnicom faces at least three separate class-action suits filed by five law firms on behalf of shareholders who bought the stock from April 25, 2000-when Omnicom announced revenue rose 20% in first quarter of 2000-to June 11, 2002, the day before a negative article in the The Wall Street Journal sent the stock into a tailspin. The suits allege Omnicom misrepresented its performance to inflate its stock price. During this period, shares hit a high of $97.57 in May 2001; they peaked this year at $97.21 on March 4. The stock closed June 21 at $53.04, down 3.56% for the week to its lowest close since 1998.

An Omnicom spokeswoman said the company's managers "strongly disagree with those allegations," but would not comment further.

Industry observers are quick to point out that shareholder suits are not uncommon and, except for extreme cases, don't severely damage companies. In fact, most never go to trial. They're mostly a drain of time and resources to the companies.

not unusual

"It's not an everyday occurrence, but it's not unusual," said Gary Roberts, deputy dean of Tulane Law School. Shareholder litigation has been common since the 1960s and `70s, when shareholder activism first took root. Today, "it happens quite frequently when management and shareholders have a falling out," he said.

The suits likely will be consolidated at the end of a 60-day period, when the attorneys will petition the court to appoint a lead plaintiff. This is most often the investor who shows the largest loss, said David Scott, managing partner of Scott & Scott, Bala Cynwyd, Pa., one of the firms that filed suit. He claimed his firm is "being contacted by a lot of investors" interested in the case.

The lead plaintiff will petition the court to bring all suits together, while the defendant usually files a motion to dismiss at this time, Mr. Scott said. If the court lets the suit proceed, then both sides begin the discovery process, which can take a year or longer, he said.

The danger of a multimillion-dollar judgment is slim, however. Most suits tend to be settled sometime after the court allows the suit to go forward. "You very rarely see it go to trial," said Tulane's Mr. Roberts. Often, materials unearthed during the discovery process will lead both sides to settle, he said.

"Most often the plaintiffs get something, unless the suit is frivolous," said Mr. Roberts. How long the process goes on is often a factor of deep pockets, he noted, since the lawyers typically front most of the plaintiffs' expenses during discovery.

in omnicom's corner

Analysts remain largely in Omnicom's corner, arguing that the fundamentals are strong and betting the stock will bounce back once investors' unease calms down.

"Clearly there are issues that are having an overhang on the stock," but investors are mostly focused on the accounting issues, not so much on the lawsuits, said Kevin Sullivan, advertising analyst at Lehman Brothers.

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