GM deals blow to IPG

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New CEO, old story for Interpublic: The holding company scored the coup of snaring the $300 million Intel account, but the good news was instantly drowned out by the bad. In a single day, it had to warn of a potential financial restatement and saw General Motors, its largest client, put its $3.5 billion media buying account into review.

A week that started on a positive note for new CEO Michael Roth-with flagship McCann Worldgroup winning the Intel ad and media business-ended very badly, as the ad industry's third-largest holding company was walloped by some of the very issues that dragged its stock down in the early part of this decade. And it all happened before Mr. Roth could celebrate his second month at the helm of the company.

General Motors, beset by its own host of problems-major financial issues and some problem products that it struggles to move even with incentives-said that the media review, which will be the biggest ever, was prompted by "changes in the competitive landscape." Executives close to the company said it might be looking to consolidate planning and buying, or might be looking for savings.

All is not necessarily lost, as Interpublic's dedicated buying agency, GM Mediaworks, will get to defend the business against Publicis Groupe's Starcom Mediavest, the sibling of GM Planworks, the planning agency on the automaker's media business. Still ad agency executives were buzzing at the news that Interpublic could lose such a huge chunk of business.

The GM news seemed even worse for Interpublic's staffers and stockholders as it followed hot on the heels of the company's admission that it may have to restate past financial results because of accounting errors going back to a late-1990s buying spree. The specter of a restatement surprised analysts, who warned that the errors could lead to a heightening of an ongoing SEC investigation into Interpublic's past bookkeeping problems or more shareholder lawsuits. It, however, did little to shock the stock price, which closed March 11 at $12.51 a share, down 4.7% for the week.

In a research note, Merrill Lynch analyst Lauren Rich Fine maintained her neutral rating of the stock, though she said there's now "a heightened sense of risk." News about the GM review broke on after the market closed.

In defending its GM national and regional dealers business, handled by Mediaworks, Warren, Mich., and in New York, Interpublic faces a tough but not impossible task. A decision is expected in two months.


Interpublic is currently in a turnaround mode that is expected to last until 2006. In recent years, the company has dumped some underperforming assets and pared back its massive debt. And some of its agencies, particularly McCann, have been successful in netting new business.

Just this week, Intel decided the biggest review of the year in Interpublic's favor, handing the business to McCann over Omnicom Group's DDB Worldwide and a team from WPP Group (see story, P. 4). Interpublic also celebrated hiring the General Mills account team that defected from Publicis' Saatchi & Saatchi earlier this year (see related story, P. 2).

Regardless, this is an early disappointment of the reign of Mr. Roth. Many observers saw his appointment as chief executive as a clear step forward. But any momentum he could have gotten from the Intel win was certainly lost at the end of last week.

These new issues will only turn attention to lingering problems that face Mr. Roth, namely, sorting out Interpublic's troubled media offering as well as struggling ad agencies like Lowe Worldwide.

Interpublic stock hit a post-recession peak of $35 in April 2002 but plunged later that year to $11 when accounting and operating problems came to light. The stock market cap-number of shares outstanding times stock price-is just $5.3 billion, less than one third that of market leader Omnicom. Interpublic's enterprise value-stock market cap plus debt minus cash-is only $6.5 billion, effectively the price tag today to buy what once was the crown jewel of Madison Avenue.

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