Feature

Close-Up: Live Issue - Should Interpublic sell off its assets?

Improved transparency and a £2bn price are tempting private equity companies, John Tylee says.

One of the more remarkable sights at last month's Cannes Festival was Michael Roth, the chairman of Interpublic, drinking and joking into the early hours amid the mayhem of the Gutter Bar.

"I'm finding I rather like advertising," Roth, who acknowledges far greater familiarity with Wall Street than Madison Avenue, told Campaign at the end of last year.

"Roth won a lot of friends in Cannes," a senior manager at an IPG network says. "You never saw Sir Martin Sorrell away from the podium and the Gutter Bar wouldn't be Maurice Levy's scene. But Roth showed that although he's new to the industry, he's determined to learn about it."

Doubtless Roth's Riviera interlude also allowed him brief respite from IPG's troubles. The group's share value continues to head south (although the group insists there are sound reasons for this), while critics cast doubt about internal harmony and on the calibre of some of the senior managers tasked with engineering a turnaround. Meanwhile, the protracted US Securities & Exchange Commission inquiry continues.

Hardly surprising, therefore, that with IPG's market capitalisation now at around £2 billion, well below its peak of £9.6 billion in 1999, talk of a takeover has been triggered.

Ironically, it is the fact IPG has managed to clean up its accounts that has alerted would-be buyers. Venture capitalists such as Hellman & Friedman and Kohlberg Kravis Roberts, which has shown interest in IPG in the past, now know what they would be letting themselves in for. Moreover, they have billions to invest as a result of the lack of attractive companies.

Within the IPG networks, which include McCann Worldgroup, Lowe Worldwide and the newly merged Draft/FCB, the feeling is that IPG has, at best, become less of a burden.

"Whatever happens does not bother us greatly," a senior regional manager at one of the group's networks shrugs. "If IPG recovers, we will make some money on the IPG stocks pushed our way. If not, we wouldn't have any problems working for Publicis." Indeed, some within IPG point to the number of shared clients (Procter & Gamble, L'Oreal and Nestle among them) that would fit with the French.

IPG cites its renegotiation of an undrawn credit facility last month as a major factor in its depressed share price. Insiders say the effect on its stock has been more prolonged than expected because of conditions affecting the entire sector. "Just because we're reasonably priced doesn't mean a deal would not be complicated and, in the case of some potential buyers, very impractical," an IPG source says.

Whether or not performance can match shareholders' expectation is an open question. True, McCann remains a formidable global operation, while Weber Shandwick, its PR arm, and R/GA, the interactive specialist, are businesses any IPG rival would covet. The downside is that Lowe struggles to find its role in an evolving communications world, while the Draft/FCB marriage has yet to prove its durability.

"If the turnaround doesn't happen soon - and we can't wait much longer - Roth will not be able to hold the line," a highly placed IPG source admits. "Our brands are, by and large, quite healthy and, at some point, the market will take charge." Will Roth be back on La Croisette next summer? You would not want to bet on it.

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FORMER IPG MANAGER - John Banks, former chairman, FCB London

"If IPG is going to be broken up, it will happen in the next six months. A lot of people were surprised the group wasn't dismembered when its share price crashed two years ago. Now it has done all the dirty work and has the right financial controls in place. If Roth can show shareholders and the financial institutions progress is being made, he might get away with it.

"One problem is sustaining the morale of his senior staff, whose stock options are currently worthless. Nevertheless, IPG represents a good bargain for somebody. The new Draft/FCB operation has the potential to do very well - and Publicis Groupe's Maurice Levy seems to be able to find money when he needs to."

ACCOUNTANT - Bob Willott, editor, Marketing Services Financial Intelligence

"With so much venture capitalist money available in the US, it's not surprising that somebody might put together a management team to buy IPG. But it wouldn't be a simple thing to do because it would require a lot of acquiescence by clients and incumbent managements. This is particularly true of McCann Erickson, where its essential clients remain stable.

"Roth has to ask himself if IPG is a sustainable business with the right management in place. If he's not sure, then he either has to slim it down - a clear distress signal - or flog it. If he can hang on for a year and win some business, he might be OK. But it's going to be tricky."

MATCHMAKER - David Wethey, managing director, Agency Assessments International

"I would never write off IPG. It's a robust old beast that has a lot of people working hard to turn it around. And, in Roth, it has somebody who not only has a law and accountancy background, but is a 'company doctor' who is well used to this kind of situation.

"What's more, the group has some good people with a client list to match. IPG is massively under-valued for what it is.

"Having said that, you wouldn't wish IPG's problems on anybody and Roth has a hell of a tough call to make. It's a very difficult organisation to manage and one possible answer might be to reconfigure around McCann Worldgroup."

REGIONAL CHAIRMAN - William Eccleshare, European chairman, BBDO

"It's pretty clear that IPG can't go on as it is, but there are so many imponderables that it's hard to predict how things will be resolved.

"Private equity companies have not been interested in agency networks because of their intangible assets. But McCann Erickson might make it irresistible. It's a powerful asset that is undervalued. The problem is in not knowing what clients such as Coca-Cola and Unilever might do.

"Perhaps the biggest surprise is it has taken such a long time for IPG to reach this situation. For too long it failed to focus on what it had. Lowe is a prime example. Too much time was spent trying to find it a new role, too little on ensuring its core business was safe."