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Interpublic May Be Thinking Of Going Private

Inside Wall Street


With the economy still limping along, advertising spending isn't exactly blasting off the blocks. And the recent thumbs-down attitude on the Street toward brand-name consumer products hasn't helped the advertising industry any. So when the stock of Interpublic Group, the world's second-largest ad agency, tumbled to a low of 23 7/8 on July 26, concern among its many fans became quite palpable. Not a few money managers who had accumulated big stakes in Interpublic--its shares traded as high as 35 earlier this year--sought reassurance from top company executives. And reassured they were.

One investment manager was told that management would resort to a buyout of the company if the stock continued to dawdle in the low 20s. With Interpublic's strong cash flow and insiders already owning some 20% of the stock, management has the financial wherewithal and borrowing capacity to take the company private, a high-ranking Interpublic officer told this money manager. He added that management wouldn't put up with it if the stock were to go down some more.

That definitely "tended to put a floor of support under the stock," says the Wall Streeter. Since then, shares have crept up, closing at 28 5/8 on Aug. 25. So far, management has purchased some 700,000 shares this year, and it's not through buying yet. One insider says management intends to purchase at least 1 million shares this year.

POWER IN NUMBERS. "Given the company's strong, predictable earnings-per-share growth rate of 12% to 15%, low debt, and share-repurchase program," Interpublic's stock could hit 42--the top of its recent 6-to-12 month trading range, figures one analyst at Neuberger & Berman, a New York investment firm. He notes that the stock usually trades at a 20% premium to the market's price-earnings multiple. Based on estimated 1994 earnings of $1.90 a share, Interpublic stock is now trading at a p-e of 14, way below the current 22 p-e of the Standard & Poor's 500-stock index.

"Most definitely the stock is cheap at its current price," says Ed Walczak, investment manager in the U.S. of Swiss bank Vontobel. He notes that the ad industry is undergoing a consolidation because some of the giants such as Saatchi & Saatchi and WPP Group have overleveraged themselves.

Walczak believes that Interpublic is the best play in advertising because of its global reach. About 69% of 1992 revenues and 80% of earnings came from overseas. The company serves over 4,000 clients in 80 countries, including Unilever, General Motors, and Coca-Cola. GENE G. MARCIAL

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