IPG to Sell Modem Media Stock

NEW YORK Interpublic Group intends to divest itself of its 42.4 percent stake in Modem Media, according to an S-3 registration document filed with the Securities and Exchange Commission.

The New York-based holding company, Modem Media’s largest investor, plans to sell 7 million of its 11.1 million shares in the company in a public offering at the proposed price of $6.62 per share, or about $46 million. After the completion of the offering, IPG will hold a 15.7 stake in the Norwalk, Conn.-based interactive shop, which it intends to dispose of following the expiration of a lock-up agreement, according to the document.

IPG, owner of R/GA and Zentropy Partners, also has granted the underwriters an option to purchase up to an additional 1.08 million shares to cover over-allotments. The underwriters for the offering are Jefferies & Company, William Blair & Company and Friedman, Billings, Ramsey & Co.

IPG’s divestiture “will not impact our day-to-day business at all,” said Modem Media CFO Frank Connolly, adding that the i-shop operates as a stand-alone public company. Added an IPG representative, “We don’t have a strategic relationship with Modem Media and we’ve decided this an appropriate time to divest.”

IPG inherited the Modem Media holding as a part of its 2001 $1.6 billion purchase of True North Communications, which took a stake in the i-shop in October 1996. As long as IPG holds 10 percent of Modem Media’s common stock, the holding company will continue to have the right to designate a board member; Larry Weber, an IPG consultant who formerly served as CEO of Advanced Marketing Services, currently occupies that seat.

In addition to IPG, two Modem Media principals plan to unload some of their shares in the public offering. Modem Media founder G.M. O’Connell, who owns a 9 percent stake in the company, plans to sell 150,000 of his 2 million shares, and director Robert Allen, who holds a 2.2 percent stake, intends to offer 50,000 of his 565,000 shares. That will leave the former with an 8.4 percent interest, or 2.2 million shares, and the latter with a 2 percent investment, or 515,000 shares.

Modem Media, which works with clients like General Motors and Kraft Foods, posted its third consecutive profitable quarter in Q3, recording net income of $2.1 million, or 8 cents per share. Third-quarter revenue for the interactive shop totaled $14.6 million, down 18 percent from $17.8 million in the year-earlier period and 6 percent from $15.5 million in Q2.

Modem Media stock (MMPT) was trading on the Nasdaq today at $5.90, down 70 cents, or 11 percent. Its 52-week high is $6.83 and 52-week low is $5.60. Interpublic Group stock (IPG) was trading on the New York Stock Exchange at $14.71, up 2 cents, or 0.14 percent. Its 52-week high is $16.50; its low, $7.20.