Omnicom, IPG Filings: A Study in Contrasts

NEW YORK It’s annual report season again, and last week the nation’s two biggest players filed 10-K reports with the Securities and Exchange Commission that outline their financial conditions in 2003 and the factors impacting their operations.

Interpublic Group of Cos. registered one of the industry’s worst performances, while Omnicom tallied one of the best. IPG, in the process of restructuring, revealed juicy details of a business in the throes of reinvention. Omnicom, which faced its own PR challenges following adverse publicity concerning unfounded accounting discrepancies in 2002, revealed more mundane information about a business resilient in the face of those challenges and the recession.

Deal making: Both companies have cut back considerably on acquisitions. Omnicom spent about $472.3 million on them in 2003, down 31 percent from 2002, while IPG spent about 19 percent less, at $224.6 million. IPG focused on shedding units that are considered nonessential, such as NFO WorldGroup, sold in July to Taylor Nelson Sofres, netting about $112 million after expenses and before taxes, according to IPG’s filing. It also divested itself of 11 million shares of Modem Media in December, for a pre-tax gain of about $30 million.

Legal issues: Since 2002, both Omnicom and IPG have been pelted with class-action lawsuits, which are still pending. IPG last year reached agreements in principle to settle federal suits related to a $181.3 million accounting imbalance, first reported in 2002 and attributed chiefly to the multiple booking of revenue among offices of McCann-Erickson in Europe. The settlement cost is estimated at $115 million, including $20 million in cash. Omnicom’s suits, also in federal court, stem from allegations that the company’s public filings and statements between Feb. 20, 2001, and June 11, 2002, contained false and misleading information or omitted material information related to some of its accounting practices. Those suits have been consolidated, and Omnicom has asked a U.S. District Court judge to dismiss the claim. The court has yet to rule on that motion.

Finances: Omnicom’s net income grew 5 percent last year, from $643.5 million to $675.9 million, which translated into diluted earnings per share of $3.59, up 4 percent from the end of 2002. Despite a hiccup in 2002, the market leader’s stock is now trading near $77, more than five times the share price of IPG, which closed at $15.13 on Friday. IPG’s SEC document draws a picture of a company still struggling to right its financial house, despite slashing staff, cutting overhead and raising cash.

A significant drag on the balance sheet has been the motor-sports unit of IPG’s Sports & Entertainment Group. Due chiefly to an asset impairment charge of $221 million, the group lost $309.5 million in 2003 and, as such, is not expected to meet IPG’s companywide margin goals this year. As a result, the parent company segregated SEG’s numbers in the filing, thereby carving a worm out of its apple.

The filing further implies that IPG is looking to shed its remaining racetrack obligations, which amount to $460 million through 2015. “The company is continuing to explore various options with respect to these commitments, at least one of which may involve a cash payment in the order of $200 million,” the filing says.

While Omnicom’s filing is a fairly dry recitation of numbers, IPG’s offers a glimpse into its talent needs via an attachment to Brian Brooks’ new contract as a consultant.

Brooks, the chief human resources officer since November 2002, shifted to a consulting role in March that will pay him $400 an hour through Feb. 28, 2005.

Several “major projects” were listed, including identifying successors to FCB Group CEO Brendan Ryan and Gotham CEO Stone Roberts. Roberts is said to have approached IPG about helping him find a successor within the New York shop or from outside. Ryan came close to finding his heir apparent last year, when he offered Grey’s Steve Blamer a top post, believed to be North America CEO. But Grey Global Group CEO Ed Meyer countered the offer, and Blamer was promoted to CEO of Grey North America.

Ryan then talked to former Leo Burnett COO Stephen Gatfield, according to sources. Those talks did not result in an offer, and Ryan in February sidestepped the succession issue by filling the agency’s vacant New York president slot with BBDO’s Lynne Seid.

Last month, however, IPG hired Gatfield in the new post of evp, global operations and innovation, leading to speculation that he may still surface at FCB, since his credentials-he held regional posts in Europe and Asia at Burnett-appear to outstrip the IPG job. Gatfield, 45, has yet to arrive at IPG and could not be reached. Ryan, 61, declined comment.

Hiring a top creative on Campbell-Ewald’s $600 million Chevrolet account and filling the chief creative officer vacancy at Campbell Mithun in Minneapolis are also concerns. The Chevy job appears to be a new position necessitated by growth in the account. Campbell Mithun has been seeking a creative chief since August 2002, when John Hurst left to steer General Mills creative at McCann in London.

Asked about the recruitment projects mentioned in the 10-K, an IPG representative declined to comment on specifics but did say, “Like our competitors, we’re always on the lookout for top talent.”

—with Kathleen Sampey