Elliott Management goes activist on Interpublic Group

Elliott Management's activist position in Interpublic Group (Part 1 of 7)

Elliott Management and Interpublic Group

Paul Singer’s activist hedge fund Elliott Management disclosed a 6.7% stake, which is valued at ~$570 million, in Interpublic Group of Companies Inc. (IPG).

Interpublic Group is the fourth-largest advertising firm globally in terms of revenue, behind WPP (WPPGF), which is the biggest advertising agency, and Omnicom (OMC) and Publicis (or PUBGY). IPG owns creative agencies such as McCann Worldgroup, FCB and Lowe and Partners, digital agencies R/GA, Huge and MRM, public relations agencies Weber Shandwick and GolinHarris, and media agencies Initiative and UM. Both IPG and Omnicom are members of the Consumer Discretionary Select Sector SPDR ETF (XLY) and the PowerShares Dynamic Media Portfolio ETF (PBS), which provides exposure to an index of media stocks.

A 13D filing said that Elliott believes IPG is undervalued and represents an attractive investment opportunity. The fund said it “seeks to engage in a constructive dialogue” with the board “regarding steps to maximize shareholder value.” Unconfirmed news reports said that Elliott might push the company to sell itself to one of its peers such as Dentsu (or DNTUY), France’s Havas (or HAVSF), or Publicis. IPG shares have rallied on speculations of it being a takeover candidate, especially since May, when Omnicom and Publicis terminated its $35 billion proposed merger.

IPG’s Magna Global forecasts that media owner advertising revenues will grow by 6.4% in 2014 to $516 billion driven by economic recovery as well as non-recurring events such as the Winter Olympics, the soccer World Cup, and the U.S. mid-term elections. Publicis’ ZenithOptimedia also forecast global advertising spend growth to increase from 3.9% in 2013 to 5.5% in 2014 due to improvement in the global economy, the spread of programmatic buying, and the rapid rise of mobile advertising. These trend are expected to benefit companies operating in the traditional as well as digital advertising segment.

An article in Reuters cited data from Hedge Fund Research and said that in 2013, activist hedge funds generated ~$5.3 billion in net asset inflows—an increase from $2.9 billion in 2012. Founded in 1977, Elliott manages ~$24 billion in assets. The main fund returned 2.5% in the first quarter. Elliott’s other targets include technology companies such as Juniper Networks, Riverbed Technology, Emulex, Compuware, Brocade, and NetApp. It’s also recently rumored to have acquired an activist position in EMC.

Continue to Part 2

Browse this series on Market Realist:

• Part 2 - Must-know: An overview of Interpublic Group’s businesses

• Part 3 - Why margin improvement is a priority for Interpublic

• Part 4 - International markets drove Interpublic’s organic revenue growth