Questions Loom As 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 to strike a deal with Interpublic Group, sources said.

Digitas CEO David Kenny declined to comment, saying only that Boston-based Digitas is committed to “growing organically … around the world.” IPG execs did not return calls, but sources said negotiations that could fold Digitas into IPG’s Allied Communications Group are continuing. However, sources said IPG has not agreed to acquire the shop, which has failed to turn a profit.

IPG may believe Digitas’ $6-7 share price is inflated and is waiting for its 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 de clined comment. Allied, in Cambridge, Mass., is likely to be rebranded Ad vanced Marketing Services. Golin/Harris will likely leave Allied for The Partnership net work under IPG’s reorganization plan, leaving a hole Digitas could fill, said sources.

Potential client conflicts, such as Coca-Cola at IPG and PepsiCo at Digitas, would have to be worked out, though common client relationships exist, such as with General Motors.

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 he has also approached, sources said. Accenture declined comment.

Digitas in 2000 lost $23 million on revenue of $288 million; revenue growth for 2001 is projected in the single digits. Digitas is majority-owned by San Francisco investment firm Hellman & Friedman.