IPG’s Offer Goes From ‘Curious’ To Doable

Interpublic Group’s new CFO, Frank Mergenthaler, doesn’t underestimate the obstacles to righting the struggling company, chief among them weak financial controls, a lingering Securities & Exchange Commission investigation into accounting problems and the delinquent reporting of results.

“IPG has got huge challenges,” acknowledged Mergenthaler, who most recently was CFO at Random House. “It’s going to be hard work.”

The 44-year-old New Jersey native did thorough due diligence before signing on—talking to top officers, agency CEOs, board members, even IPG’s outside accountants—but said his first meeting with Michael Roth influenced his decision to accept the offer as much as all the research.

That meeting was scheduled to last a half-hour but turned into a free-flowing, 90-minute back-and-forth on the state of the $6.2 billion company. “We had a very engaging discussion,” said Mergenthaler, an active runner who entered Roth’s office thinking IPG was a “curious opportunity” and left feeling, “This could be done.”

From Roth’s perspective, Mergenthaler had all the tools: CFO experience in creative fields (media and entertainment), accounting skills honed at Price Waterhouse and a track record of improving profitability and operating performance in a relatively short period of time (Columbia House, where he spent the past three years).

Mergenthaler, a Providence College alumnus, has never before been a CFO at a public company; but at IPG, he’s expected to focus on fixing internal problems, while Roth deals with Wall Street. “He’ll be a strong partner for me,” Roth said in an internal staff memo. “Frank is a first-class executive, with great command of every facet of the finance function. He’s straightforward, approachable and results-oriented.”

Mergenthaler starts Aug. 1 and will earn at least $1.5 million annually in salary and bonus, according to a federal filing. He replaces Bob Thompson, who last month said he was leaving, amid Roth’s search, which sources said took two months. The new CFO is IPG’s fourth in two years. “The challenges the company’s finance department face are not helped by the frequent turnover,” said UBS analyst Brian Shipman. “[We] hope this represents a turning point that will provide stability in the … CFO position.”

Mergenthaler’s 13 years at Price Waterhouse, where he began his career as an accountant and rose to partner before leaving in 1996, is “real important and a real big plus,” said Bear Stearns’ Alexia Quadrani, who deemed the hire a “modest positive.”

Mergenthaler arrives at a busy time, with the SEC probe percolating and a Sept. 30 deadline for reporting results for ’04 and the first half of ’05 looming. The probe, which began in ’03 after IPG revealed a $181.3 million accounting imbalance, expanded this year to cover acquisition accounting problems IPG reported in March.