Is IPG Worth The Sum Of Its Parts?

Accounting woes nearly behind it, the ailing ad giant must now weigh a breakup

Interpublic Group of Companies (IPG ) Chief Executive Michael I. Roth has Sept. 30 circled on his calendar. That's the deadline for filing the ailing ad giant's long-delayed 2004 financial reports, or face a delisting by the New York Stock Exchange.

That would be a worse blow to Roth than the recent loss of Bank of America Corp.'s (BAC ) $600 million ad account. The defection followed a string of account losses on top of IPG's financial meltdown and a government probe into its accounting. Roth says he'll make his deadline. After that, he acknowledges he may have to defend keeping IPG whole against pressure to break it up. "Maybe that's an issue for us down the road," says Roth. "But right now, it doesn't make sense."


Without 2004 results in, valuing IPG as the sum of its parts is tough. "They don't give us enough information to know the profitability of each agency," says Merrill Lynch & Co. analyst Lauren Rich Fine. Insiders say IPG's McCann Worldgroup is healthy, and its smaller units such as Draft and New York-based Deutsch make money, but Lowe & Partners and other problems could keep downward pressure on the stock. IPG closed at $11.77 on Sept. 7.

Making it especially tough for IPG is that rivals are doing much better. Omnicom shares trade at twice IPG's price-to-revenue ratio. Omnicom has acquired many agencies too, but, unlike IPG, has not merged a diverse group of large firms. Lowe, for example, had to digest four agencies, one after the other. "Those who fail in this business usually do so because they lose their culture," says Howard Draft, CEO of IPG's Draft.

IPG's woes stem from an acquisition spree in the late 1990s of more than 400 firms around the world. It even owned Formula One racetracks for a time. In those years, says Roth, IPG overpaid for many agencies and didn't accurately track their true profits.

As chairman and then CEO, Roth has been cleaning house. IPG has restated earnings from 1996 to 2001, and will restate more this month. It has also taken almost $3 billion in write-downs and nearly $1 billion in restructuring. Meantime, it expects to bring in about $6 billion in revenues this year, helped by new global accounts with Intel and Nokia. But those big wins pale beside big losses from BofA, General Motors (GM ), and Samsung. Though some agency chiefs inside IPG say privately they would favor a breakup, Roth has supporters. "This is the horse I chose and the horse I have to ride," says Howard Draft. Would that clients were so loyal.

By David Kiley in New York

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