Interpublic: the vulture has landed

Michael Roth, chairman and CEO of Interpublic

The clock is now running for Interpublic after the news that ‘activist’ investor Elliott Management has taken a stake in the advertising group. However, as Dominic Mills notes, there are a couple of surprises…

Most people in the ad industry love a good gossip, and few operations have been the subject of more gossip over the last few years than Interpublic. Although the fourth by size – after WPP, Omnicom and Publicis – it is the oldest by history.

Its recent history, however, has been pretty spotty, making it the constant subject of takeover or merger hysteria going back to 2006 when, at $8, its shares were less than half their price last week.

This narrative of IPG as takeover target peaked last summer during the abortive Maurice-and-John/Publicom love-in: surely, everyone said, either WPP or Dentsu would buy Interpublic just to claim the bragging rights or play catch-up.

Then, after Maurice and John called off the engagement a couple of months ago, the hysteria subsided.

Now, following Thursday’s news hedge fund investor Elliott Management has taken a 6.7% stake, the gossip will rise to fever pitch again.

And one thing is pretty much certain. Whatever happens, Interpublic won’t escape Elliott in the same shape it was last Wednesday night (i.e. before it announced its stake). It is, as they say in the business, ‘in play’.

There is something wonderfully Orwellian about the coded language of finance. Elliott is described as an ‘activist’ investor, which translates as ‘it’s going to make a nuisance of itself until it gets what it wants’. And it has a reputation for doing this. Just ask Argentina, which calls Elliott a ‘vulture’ for its appetite for picking over the debt-laden country’s carcass.

For its part, Elliott says it just wants “a constructive dialogue” with Interpublic (code for: we’ll hound you relentlessly and in public until you agree to our demands) …”regarding steps to maximise shareholder value” (code for: we’re not leaving until we make a massive profit on our stake in you, preferably when you sell out to a competitor).

And there you have it: the clock is now running. There are, however, a couple of surprises. The first is that Elliott has waited till now. Had it struck a year ago, in the immediate aftermath of the announcement by Publicis and Omnicom, it would have picked up Interpublic shares a good 15-20pc cheaper than it has recently.

Source: Yahoo Finance.

And such was the fear amongst all the other major players of being left behind, it might have found it easier to engineer a merger then than today.

Now, in the wake of the collapsed deal, ‘merger mania’ has cooled somewhat. Elliott, however, is betting that, in the short term at least, this is only a temporary blip.

In the medium term, it will argue, the big holding companies will still have to merge. The logic? Well, the tech giants continue to power ahead, and media owners like Murdoch and Liberty can only survive by getting bigger (even if Time-Warner and ITV don’t see it that way).

But what happens if Elliott can’t grind Interpublic and its boss, 68-year-old Michael Roth, (who might conclude that at his age he doesn’t need this kind of grief), into the ground? What happens if the likes of Dentsu, WPP or Havas (we must surely discount, for the time being, Publicis and Omnicom) find the price too rich?

Well, Elliott will surely arrange for the gradual dismemberment of Interpublic. As a holding company Interpublic may be no great shakes, but some of its networks and operations would be very welcome elsewhere: McCann, Universal Media, Weber Shandwick, R/GA, Futurebrand, even Lowe.

Indeed, it’s quite possible that the sum of Interpublic’s parts may be greater than the whole, in which case Elliott would have no problems arguing for that solution.

Either way, Interpublic will not emerge from its dealings with Elliott the same as when it started. Even in the unlikely event that Interpublic fends off Elliott, it won’t go away empty-handed.

The ultimate loyal clients

Talking of Interpublic’s agency brands, FCB (draftfcb, as was) has long been perceived as the runt of the litter. Last month’s victory in the BMW pitch by its UK offshoot, FCB Inferno, will help change perceptions.

As always, the gossip is that it won on price – said by insiders to be a third lower than that offered by the incumbent, WCRS. Never mind: losing agencies always blame price, just as the winners put it down to genius and perspicacity.

The loss was celebrated, if that is the word, by some ads in Campaign by WCRS, trumpeting the work it produced over 35 years – effectively a ‘come and get me’ to other car brands.

But here’s the thing: car brands are remarkably loyal customers. Audi has been with BBH for 32 years; VW with DDB for even longer; Toyota has graced Saatchi and Saatchi’s doors for 40 years or so; Publicis has had Renault longer than most people remember, as has Peugeot-Citroen with Havas (OK, so the French play by different rules); and Ford has been with O&M, or part thereof, for donkey’s years.

There’s no doubt that car accounts are complex and multi-faceted, but no more so than other categories like supermarkets. They also tend to be tied into global networks, which makes them harder to disentangle.

But they stick through thick and thin with their agencies, and all the above have had their thin moments.

FCB Inferno will be hoping that, whatever happens to its parent company, BMW continues to show the same loyalties.