Interpublic Stock Plunges, Stoking Acquisition Speculation
NEW YORK (AdAge.com) -- How much would you pay for a stable of well-known ad, direct and PR agencies with instant global reach and access to Fortune 50 companies like Microsoft, General Motors and Johnson & Johnson? The answer is
|Since Michael Roth ascended to the Chairman-CEO position, Interpublic share value has declined 41%.
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Current market cap
That $3.4 billion is Interpublic Group of Cos.' current market cap, down from $5.6 billion when Chairman-CEO Michael Roth, lauded for his financial acumen, ascended to the top job about a year and half ago, and way off its peak of $16.8 billion in 1999 when Interpublic was a Wall Street darling.
Share declines in recent weeks -- the stock July 14 fell to its lowest closing price since 1991 -- have gotten many industry observers once again chattering about just how ripe a target the ailing home of McCann Erickson, Lowe Worldwide and Weber Shandwick is for private-equity interests. Last year U.S. private-equity firms raised about $152 billion in funding and, by all accounts, are struggling to find ways to invest it.
'On the table'
"That's something that's on the table," said one analyst, who over the past month or so has observed an uptick in interest in the No. 3 holding company from such firms. "It's a function of where the stock has gone."
Said an Interpublic spokesman in a statement: "We are in the early stages of our turnaround, and the best way for us to maximize shareholder value continues to be by improving operating performance, not by considering a sale."
This is not the first time there's been such speculation. Interpublic's 2005 woes -- the loss of big pieces of business from GM and Bank of America and a six-month internal investigation that resulted in a downward restatement of $550 million -- caused similar talk, driven largely by the holding company's apparent inability to shake loose its past difficulties.
The difference now, besides a struggling stock price, is that Interpublic has cleaned up its balance sheet so that potential buyers would know what they're getting into.
There are, to be sure, prominent private-equity players hanging around the ad game, namely Hellman & Friedman, which eyed Havas and looked at Grey before it was purchased by WPP Group. Hellman recently was part of a consortium that bought Dutch media giant VNU. Another firm in that consortium, Kohlberg Kravis Roberts & Co., is said to have been interested in Interpublic in the past.
'Break it up'
Said one industry executive close to the mergers and acquisitions community: "PE firms would probably break it up, strip it down and put additional leverage into the profitable bits of the business. ... With the amount of unallocated capital in the PE world right now, it wouldn't be a huge surprise if someone took a run at it."
Many insiders have voiced disappointment in Mr. Roth's performance. Since Mr. Roth, 60, ascended to the top job, shares have declined 41%. At that time, the company tried to mute concerns about his lack of experience in the ad business with assurances that he would be just what the company needed as it sorted out its balance sheet.
Negative market reaction
While his opening months were spent dealing with a pre-existing accounting mess, what particularly stings is that two major financial moves, an October 2005 preferred stock offering and a recent deal for a new credit line, have resulted in negative reaction from the market.
More recently, the credit deal, announced in June, caused many analysts to question the company's footing. Interpublic closed July 14 at $7.86, its lowest closing price since the recession year of 1991, on its second-highest volume since the stock implosion after the June financing move. (Since that June announcement, the ad sector as a whole has a declined and, late last week, Interpublic suffered from broad market jitters stemming from turmoil in the Middle East.)
"Every single manager at IPG is talking about what is the best exit strategy," said a senior Interpublic agency executive, "both for them as individuals and for their companies."
Aside from financial issues, operational challenges loom for Interpublic. The biggest question mark is just how the recently announced merger of Draft and FCB will pan out. Interpublic is still working to turn around Lowe Worldwide as well as its media-planning and -buying operations.
There are some bright signs, however. By all appearances, the holding company has stanched the bleeding of big clients that hurt so much last year. And its first quarter saw its first positive organic-revenue gains in four quarters, 4.8%, offering some cause for optimism.
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Lisa Sanders and Bradley Johnson contributed to this report.