Shares of Omnicom Group Inc. tumbled again yesterday as concern about the world's third-largest advertising company's accounting for acquisitions continued to rattle investors.
But advertisers and Omnicom officials in Canada said it is business as usual for the company and its extensive roster of clients.
"The market is very jittery and any time you have a leading-performance company that's had growth after growth for years, you're a target," said Frank Palmer, chairman of Omnicom-owned DDB Group Canada and Palmer Jarvis DDB.
"I'm not really concerned but you don't like to see the value of the stock drop, because I'm a fairly large shareholder in Omnicom," said Mr. Palmer, who described all the attention to Omnicom as a "witch hunt."
Omnicom shares fell $7.66 (U.S.), or 12.3 per cent, to $54.62 yesterday. The stock dropped as low as $50.94, following a 20-per-cent decline Wednesday after an article in The Wall Street Journal examined investors' concern that the New York-based firm's acquisition accounting understated liabilities.
Omnicom's troubles continued to mount yesterday when New York law firm Wolf Popper said it is suing the company and several of its senior officers in a class-action lawsuit. The lawsuit is on behalf of investors who bought stock from April 25, 2000, to June 11, 2002.
"The complaint alleges that defendants materially misrepresented Omnicom's financial results through improper accounting methods in connection with certain acquisitions," Wolf Popper said in a statement.
An Omnicom spokesperson was quoted by adweek.com as saying, "We completely disagree with what [Wolf Popper]said in their release."
Omnicom spreads out purchase payments based on expectations of the acquisitions' performance in future years, according to a regulatory filing. The payments are not included on the company's financial statements even though they are a liability, The Wall Street Journal reported.
"When you have an accounting scandal or even a taint of one, these stocks have tended to go down and continue to go down until investor confidence returns, and I don't see that happening for a while," said Glenmede Trust Co. chief investment officer Bruce Simon on Bloomberg TV. Glenmede owned 595,000 shares of Omnicom in March, according to regulatory filings.
Omnicom, whose clients include PepsiCo Inc. and Anheuser-Busch Cos., said yesterday its accounting was appropriate. Chief executive officer John Wren said the company plans to disclose more to investors and analysts.
In Canada, Omnicom has about 3,000 employees in its vast network of advertising, media and public relations agencies. Its holdings include BBDO Canada, OMD Canada, Palmer Jarvis, TBWA/Chiat/Day, GPC International and Fleishman-Hillard.
Advertisers aren't about to bolt the company, said Ron Lund, head of the Association of Canadian Advertisers. The ACA represents about 100 of the largest advertisers in Canada, including Omnicom clients Pepsi-Cola Canada Ltd. and DaimlerChrysler Canada Inc.
"Until there are more facts, I think it's really speculative to make any comment on it. Having said that, one of the things we're always after . . . is transparency and accountability," he said.
The company owes as much as $350-million for future payments through 2005, chief financial officer Randy Weisenburger said on a conference call yesterday.
Omnicom, creator of the PepsiCo ads featuring singer Britney Spears, accounts for such payments as acquisition expenses rather than as compensation, although they should be reported as compensation expenses, the Journal said, citing Pennsylvania State University professor of accounting J. Edward Katz.
Some investors are also concerned about the resignation of board member Robert Callander, who was chairman of the company's audit committee. Mr. Callander was unhappy with Omnicom's limited disclosure to the committee on an entity called Seneca, formed last year by Omnicom and Pegasus Partners II to house Omnicom's Internet investments, the Journal said.
Mr. Wren, a former manager at Arthur Andersen LLP, said that Mr. Callander gave no reason for his resignation and that there was no dissent on the board.
John Heinzl