Troubled IRI forms joint venture

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Hard-hit by losses, declining revenues and reports of tough bargaining by clients, Information Resources Inc. has entered into a joint venture with Canada's Mosaic Group, which will become 51% owner of the newly formed Mosaic InfoForce. IRI will hold the remaining share.

The move is part of IRI's Operation Delta program to streamline operations and cut expenses, although the impact of the deal on IRI's revenues--at $546 million last year with losses of $18.4 million--wasn't disclosed. The Mosaic venture involves more than half of IRI's 4,000 employees; as a result, 2,400 jobs, mainly in field data collection, will be outsourced.

IRI CEO Joseph P. Durrett said the joint venture wasn't prompted by IRI's recent financial results, though it will eliminate $50 million in annual payroll expenses.

"The trouble was [the field force] was always a sideline [for us] and we were doing it on kind of an ad hoc basis." Spinning off the unit gives IRI better focus and revenue potential, he said.


"Reducing the nearly fixed cost base at IRI is a very, very big issue in the survival and success of the company," said Jim Dougherty, analyst with Prudential Securities. Revenue fell 2% to $129 million in the first quarter, and Mr. Dougherty said indications are it will remain flat to down through 2000.

Moreover, he estimated IRI's share of its core U.S. syndicated data market at 47%, compared to 53% for rival ACNielsen Corp., an exact reversal of their positions three years ago. "Nielsen pretty clearly has the operating momentum in the U.S. going for it now," Mr. Dougherty said.

And investors, who initially warmed to Mr. Durrett's appointment by sending IRI's stock price up more than 50% to around $11 last October, have since soured on IRI's prospects, sending the stock to near five-year lows of $5.50 this month.


Mr. Durrett blames IRI's revenue drop on a combination of foreign currency effects on IRI's European business and the "lag effect" of business lost in 1998 and 1999. "We lost some clients that I wish we hadn't lost," said Mr. Durrett, a former executive at both Procter & Gamble Co. and Kraft Foods, who took the helm at IRI last May. But he adds, "Since the end of the summer of 1999, we have renewed nearly every client that has come up for renewal. And we have been very successful at picking up some new clients." Canandaigua Wine Co. and Polaroid Corp. are among recent new IRI clients, and deals are close on two others.

But some industry executives and analysts question the price at which IRI is retaining and attracting business. "My question was are [the contracts] being renewed at satisfactory prices, and the answers were intangible . . . The interpretation I made was objectively they probably are not being renewed at satisfactory prices," said Mr. Dougherty.

One industry executive said Kellogg Co. recently renewed with IRI at $2 million annually vs. $4 million previously. And while IRI also recently extended its contract with its biggest client, P&G, the deal came close on the heels of IRI agreeing to beef up operations near Wal-Mart Stores' Arkansas headquarters.

IRI, Kellogg and P&G would not comment. But Mr. Durrett did say IRI's prospects are strong. "The combination of the renewals we've made and the new business we've gotten is way, way ahead of anything we haven't renewed." He added that IRI's outlook is improving both in the syndicated retail measurement market and new ventures.


Among new ventures, IRI this month launches Netquity, a joint venture with Forrester Research that will track the online shopping activity of package-goods brands' consumers and forecast the impact of online retailing on brands. IRI also has developed online consumer testing services and E-scan, which tracks the online navigation and shopping habits of members of IRI's household panel, a service Mr. Durrett billed as the first of its kind.

IRI also still has hopes of finding relief in the courts, where it has pressed a lawsuit charging Nielsen with anti-competitive practices. The suit, filed in 1996, could come to trial late this year or early next.

Mr. Dougherty and two other analysts who have maintained hold ratings on IRI, however, aren't swayed by IRI's prospects in or out of court. Nor does he see much likelihood of an acquisition, since Nielsen, the only logical candidate, was rebuffed by the Federal Trade Commission when it tried to make a deal in the late 1980s. "I just don't see how IRI works its way out of this," he said.

Some research and package-goods industry executives, however, believe P&G and other clients will ultimately do what they must to keep IRI afloat, hoping to maintain competition in the industry rather than rely on one player, as they do for TV ratings. Mr. Durrett has heard such speculation himself, but dismisses it. "We earn our stripes every day," he said. "We're not being kept on for a charity, that's for sure."

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