Tesco set for £3m IPG windfall

IPG's Michael Roth phones Tesco's Tim Mason to explain why IPG owes the retailer a £3m rebate.

Tesco has emerged as the first UK advertiser to benefit from Interpublic's attempts to clean up its financial relationships with its clients.

IPG is in talks with Tesco about handing over a rumoured £3 million from the media agency Initiative and the creative agency Lowe London.

In Initiative's case, the money relates to undeclared discounts from media owners and in Lowe's it is also thought to be attributable to volume discounts received from its suppliers.

Michael Roth, the IPG chief executive, is reported to have phoned the Tesco director Tim Mason personally to inform him of the intention to return the excess payments, which date back as far as 2000.

Both Lowe and Initiative - via its absorbtion of the old Lowe media operation - have worked with Tesco for more than 16 years. Their work for the retailer has helped it become the biggest supermarket in the UK. Figures for Tesco's first half to 13 August 2005 show its sales had increased by 14 per cent to £18.8 billion year on year.

The repayment talks with Tesco follow IPG's recent announcement that it is earmarking $250 million to return to clients around the world as part of a move towards greater transparency in its dealings. The announcement was made alongside a restatement of IPG's results.

The bulk of the rebates to clients is expected to come from Southern Europe and the Far East. However, IPG's actions have put the spotlight on the issue of transparency in the UK.

It is unclear whether McCann Erickson and its sister media agency Universal McCann will be forced to make similar reimbursements to clients in the UK. Both companies refused to comment.

There is no suggestion that the payments being returned to clients relate to illegal or improper activity, but Roth is keen for IPG to demonstrate "commitment to the integrity of our financial statements and to a new level of transparency".

IPG's move to tackle the issue of media-owner payments to media agencies and creative agency discounts on supplier costs has stirred up massive debate in the industry. ISBA has advised its members to monitor the issue, while rival advertising groups are faced with the prospect of having to follow IPG's lead.

The majority of media agencies make significant income from media owner volume bonus payments, but argue that most clients are aware of the practice.

Agency networks must declare clearly all payments received from media owners and other sources in order to be Sarbanes-Oxley compliant.

Tesco, Lowe, IPG and Initiative all refused to comment.

- Media Forum, page 8.