Digitas, IPG Discuss Deal

Potential client conflicts, Digitas’ lack of profitability and other financial matters remain sticking points as the interactive and direct marketing shop looks for a deal with the Interpublic Group of Cos., sources said.

David Kenny, Digitas CEO, declined to comment on any possible union, saying only that Boston-based Digitas is committed to “growing organically … around the world.” IPG executives did not return calls, but sources said negotiations that could bring Digitas into IPG’s Allied Communications Group are continuing.

However, sources cautioned that the deal is not a fait accompli given that IPG does not wish to overpay for a company that has failed to turn a profit.

IPG may believe that Digitas’ $6-7 share price is inflated, and is waiting for Digitas’ financial picture to improve—or the share price to fall—before committing to a deal, sources said

Should the deal be consummated, Digitas would report to IPG through Allied CEO Larry Weber, who declined comment. Allied is likely to be rebranded Ad-vanced Marketing Services. That group houses public relations, events marketing and other below-the-line agencies. Golin/-Harris will likely leave Allied for The Partnership network under IPG’s reorganization plan, leaving a hole Digitas could fill, sources said.

Potential client conflicts, such as Coca-Cola at IPG and PepsiCo at Digitas, would have to be worked out, though common client relationships also exist—for example, both shops already handle General Motors.

In the 1990s, IPG’s McCann-Erickson and Digitas precursor Bronner Slosberg Humphrey briefly formed a joint venture in an effort to win more GM direct assignments.

Kenny has been “aggressively” seeking an outright sale or alignment for Digitas with one of the holding companies or a global consulting firm such as Accenture, which Kenny has also approached, sources said. Ac-centure declined comment.

Digitas in 2000 lost $23 million on revenue of $288 million; revenue growth for 2001 is projected in the single digits, a far cry from the 54-percent gain last year. Digitas is majority-owned by investment firm Hellman & Friedman.

Digitas is an attractive addition for IPG or another holding company because of its technology marketing prowess and because “they have a blue-chip list of clients,” said industry consultant Bill Montbleau.