Elliott Management's activist position in Interpublic Group (Part 7 of 7)
Paul Singer’s hedge fund Elliott Management disclosed a 6.7% stake in the advertising firm Interpublic Group (IPG) through a 13D filing. Elliott’s filing said the fund believes IPG is undervalued and represents an attractive investment opportunity. According to unconfirmed news reports, the activist investor is looking to sell the company.
We compared IPG with its main peers in the advertising space such as WPP (WPPGF), Omnicom (OMC), France-based Publicis (PUBGY), Havas (HAVSF), and Japan-based Dentsu (or DNTUY).
Interpublic’s price-to-earnings multiple (or P/E) is higher than its main peers WPP, Omnicom, and Publicis. The company’s enterprise value (or EV) to earnings before interest, taxes, depreciation, and amortization (or EBITDA) is higher than the peer average. However, as discussed in an earlier part of this series, IPG’s operating and profit margins are lagging that of its main peers.
IPG has a lower dividend yield compared to WPP and Omnicom, which raised its quarterly dividend in May by 25% to $0.50 per share. IPG also raised its dividend earlier this year by 27% to $0.095 per share quarterly or $0.38 annually. IPG said at the end of 2013 that it had repurchased shares worth $1.6 billion since 2011. During the first half of 2014, the company repurchased 5.6 million shares of its common stock at an aggregate cost of $97.3 million. It also authorized a new $300 million share repurchase program in February.
The company issued $500 million in aggregate principal amount of its 4.20% senior notes due 2024 during 2Q14, and said the majority of the net proceeds were used towards the redemption of all $350 million in aggregate principal amount of its 6.25% notes due 2014. The management said that this would lower the interest expense for the company and enhances its financial flexibility.
The outlook on the sector is bullish with research from Magna Global and ZenithOptimedia indicating an increase in global advertising spending driven by economic recovery in the U.S. and Eurozone and other one time events. IPG shares have also rallied on activist interest and speculation that it’s an attractive acquisition target. Jefferies analyst John Janedis said in June that Interpublic could see “strong organic growth” on the back of “account win tailwinds in the first half of the year, and net positive business wins year to date.” Also, the company said it expects to improve its operating margins through cost cutting measures and other strategic actions. Expansion into the international markets as well as growth in digital services are expected to be future growth catalysts for the company.
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