The stock of Interpublic Group, the world's number three agency holding company, plunged by five percent Tuesday following a decision by its largest client, General Motors, to review its US media account [WAMN: 15-Mar-05]. IPG will repitch for the $2.76 billion (€2.07bn; £1.44bn) business against Publicis Groupe's Starcom MediaVest.
IPG professes confidence it will retain the business, hoping this will bolster investors' faith in its stock. Asserts the group's new chairman/ceo Michael Roth: "We firmly believe that we can mount a successful defence, as we did on the recent review of the GM European media buying assignment, which took place late last year."
Roth also attempted to talk down the effect on the group's stability should it fail to retain the account - especially after this week's damaging revelation it would not be filing full year results for 2004 by the due date. IPG also revealed it had discovered $145m in overstated revenues related to acquisitions over the five years to 2001.
"Given the concern that the announcement of the US review has created in the financial markets," Roth said, "it bears mention that the revenue associated with the assignment in question represents less than 1% of our global revenue and that our financial condition and liquidity remain strong."
But some onlookers wonder if Roth is whistling in the dark? An analysis by Advertising Age of IPG's recent numbers suggests that ...
- GM paid Interpublic $45 million to $50 million in 2004 for US media-buying services.
- Interpublic's fee on the assignment was 1.3% to 1.4% of measured-media spending.
- The US media account represents an estimated 10% of Interpublic's global GM business.
- Interpublic hasn't disclosed fourth-quarter revenue. But full-year revenue, excluding foreign-currency shifts, should come in around $6.2 billion if the growth trend for the first nine months continued. The estimated $45 million to $50 million would be 0.7% to 0.8% of Interpublic's 2004 revenue.
- GM's estimated $45 million to $50 million in revenue for media buying equates to a fee of 1.3% to 1.4% on the total $3.52 billion in measured-media spending. And although GM doesn't pay Interpublic based on [TNS Media Intelligence's] spending estimates, the calculation illustrates the clout GM carries as the nation's second-largest advertiser. Media-buying fees vary, but major advertisers tend to pay fees in the range of 1% to 2% of media spending.
- Given GM's imperative to cut costs, the winner - whichever that might be - is highly unlikely to earn the present level of revenue from the account
Elsewhere in the IPG firmament, the upheaval continues ...
Data sourced from multiple origins; additional content by WARC staff