No End In Sight For The Interpublic Nightmare (IPG)

Interpublic (NYSE:IPG), one of the world's largest advertising and public relations conglomerates, just can't seem to wake up from its multi-year nightmare. Within the last few weeks, the company posted a loss and restated an earlier quarter, lost its chief accounting officer, cut offices at one of its largest divisions, sued one of its former star executives, and had S&P cut the ratings on its bonds, which are already in junk territory.

The company seems to go through senior managers so fast that you can't tell the players without a scorecard.

Revenue for Q4 05, recently reported, was $1.9 billion, slightly down from a year earlier. The full-year was flat at $6.3 billion. Full-year operating loss was $104 million. The company closed the year with $2.2 billion in cash and marketable securities, but also had $2.2 billion in debt. Maybe they should just use the cash to pay it off. To complicate matters, the company offered $525 million in convertible preferred stock and got a waiver on a revolving line of credit. Most of that sounds worrisome.

I always find it helpful to look at a company's website. If they cannot be clear about what business they are in, it's usually a bad sign. To get through the Interpublic website, I needed a map, a flashlight, and a two-week supply of food and water. And, this is a company in the marketing and public relations business.

Interpublic's CFO recently said that the company had exited 29 non-strategic or unprofitable businesses in 2005. One would think that would mean 2006 would be a banner year, with all of that ballast thrown over the side.

But looking at the company roster of divisions, what is core and what is not? There must be fifty units that make up Interpublic. Is the Frank About Women marketing consultancy which helps companies pitch women strategic? I would hope one of the larger advertising divisions like Campbell-Ewald or Foote Cone could do that. They are huge ad agencies with multinational clients.

How about Graphic Orb, which provides print design and production services? Is that one core? My favorite division is OneSeven, an "elite force of account, strategic and creative people with an average of 20 years of experience in the advertising industry." I guess the people at the larger ad agencies Interpublic owns can't do that.

No wonder no one wants to own the stock and it has fallen from $16 two years ago to under $10 today. The company's market capitalization is about 70% of its annual revenue.

Interpublic needs to sell a lot more of its businesses. Operating a company with this many arms and controlling financials and management for all of them is just too hard, which is what got the company into trouble in the first place.

Cut back. Own a few really big, first-tier ad agencies and operate a business that management and investors can understand.

IPG 1-yr Chart


Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine which made the AdWeek 10 Hottest Magazines list twice. He was also president of Switchboard which was the 10th most visited website in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online.