Accounting for Omnicom’s Wall Street Week of Crisis

NEW YORK — As the free fall in Omnicom’s stock appeared to level off late last week, the embattled company called a weekend board meeting at its Madison Avenue headquarters, scheduled for 6:00 p.m. on Sunday. The session was intended to keep the board apprised of senior executives’ efforts to manage the current crisis slamming the company’s stock.

It was a stunning week of trading for the longtime Wall Street darling, widely considered to be the sector’s gold standard. By mid-morning Thursday, OMC shares slid to an all-time low of $50.94, down 16.6 percent from the day’s opening price.

Following Wednesday’s publication of a critical piece in The Wall Street Journal, short-sellers pummeled Omnicom’s shares. As investors reacted to the page-one feature that cast doubts on Omnicom’s accounting practices-related to acquisitions — and the move of Internet assets into a new outside entity, Seneca, the company’s shares took a dive. At one point, Omnicom lost more than a quarter of its value on staggering trading volume Wednesday, with shares closing the day at $62.28, down 12.3 percent. More than 30 million shares traded hands in a stock that typically has daily volume of 1.5 million shares.

By week’s end, more bad news played into the hands of short-sellers: Standard & Poor’s revised its outlook on the company to “negative” from “stable,” and two New York law firms, Wolf Popper and the law offices of Charles J. Piven, filed class-action shareholder lawsuits against Omnicom. It didn’t seem to matter that S&P also reaffirmed Omnicom’s investment-grade, single-“A” corporate credit rating. The headlines reinforced investors’ jitters about the stock even as Wall Street analysts and institutional buyers rushed to its support.

On Friday, Omnicom shares closed at $55.05, up 0.79 percent. During the day, the stock traded as high as $56.50.

Even industry competitors — as they too were accused of being “serial acquirers” — privately expressed concern over the devastation in Omnicom’s stock and voiced belief in the validity of Omnicom’s growth record.

Investors’ fears began mounting the week of June 3 as rumors spread of the pending publication of the WSJ story. Those concerns appeared to ease on Monday after the newspaper ran a more routine news story reporting the resignation of Omnicom board member and head of its audit committee Robert Callander. Omnicom’s shares began to recover. But on Wednesday morning, investors who thought the worst was over after the earlier news story were greeted by the larger WSJ feature.

Saying the piece was full of inaccuracies and innuendo, Omnicom CEO John Wren and CFO Randy Weisenburger held a conference call with investors to dispute the WSJ assertions. Analysts at Merrill Lynch, UBS Warburg and Salomon Smith Barney issued reports saying there was nothing new in the WSJ’s reporting. Omnicom said it hired KPMG to replace Arthur Andersen, with the new auditors expected, in the coming weeks, to release their review of Omnicom’s books. That didn’t reassure some financial observers. On Thursday, SunTrust Robinson Humphrey lowered its rating on Omnicom’s stocks to “neutral” from “outperform,” citing the current “crisis of confidence” among investors. The stock reacted by dropping 10.6 percent, closing the day at $54.62.

One investor’s “crisis,” however, is another trader’s opportunity.

“This is the only industry I can think of where you have a premium product go on sale and customers walk out of the store,” observed Alan Gottesman, managing director of West End Communications.