....On the Omnicom investigations

Omnicom is rattled. The world's third largest marketing
services group, which owns the TBWA and BBDO advertising networks plus an increasingly vast number of other businesses, has become the latest victim of the jitters on Wall Street.

Since the collapse of the energy firm Enron, it seems that no one is safe. Rumours that a critical article on the company was set to appear in the Wall Street Journal were enough to make a significant dent in the group's share price at the beginning of last week. When a lengthy report did finally appear, there seemed to be no smoking gun, but perhaps by dint of the sheer volume of column inches the piece sent Omnicom into a tailspin. A week later, the business had lost almost one-third of its value.

The story in the Journal was typically thorough, but the critique lacked the punch of the some of the scandals currently battering corporate America. The allegations made were vague at best. The piece raised questions about the accounting for acquisitions, which it seemed to suggest left room for massaging of figures to allow Omnicom to present a flattering picture of growth. The piece also suggested a boardroom rift, centering on an internet business, Seneca, set up to house Omnicom's loss making internet assets.

There were also questions on the earn-out liability faced by Omnicom, levels of cash flow and debts that stand at $2.9bn (£1.9bn). Analysts pointed out that there was nothing new in the report, but in a market waiting for the next high-profile disaster, it doesn't take much to spook investors.

Omnicom reacted with admirable speed. A hastily convened conference call for analysts dealt with the points one by one - the piece, chief executive John Wren said, was riddled with "improper innuendos". The method Omnicom uses to account for acquisitions is more aggressive than its rivals, but, the company said, falls within guidelines. Earnout liability is currently up to $450m (£301m) and manageable.

The resignation letters of two directors, including the chairman of the audit committee, were posted on the
company website for anyone to download with the aim of proving that neither had gone in protest.

Seneca, the company added, has no debt - a clear nod to difference between it and off balance sheet vehicles at Enron that hid huge debts and ultimately sunk the company.

Acquisitions have been a focus of concern for many analysts since the Enron debacle. Omnicom is typical in that it rarely breaks down how much is paid for smaller individual companies and neither does it report their individual profits. Omnicom's acquisition policy "many and often" has differed little from that of its chief rivals in the market, WPP and Interpublic. So why pick on Omnicom? The answer seems to be that in the face of the worst advertising recession in living memory, Omnicom has continued to produce double-digit growth, even as everyone else is suffering. Alarm bells are sounded in the current market more by uncommon success than they are by firms that are clearly struggling.

Wren, a former accountant himself, said the group would work toward greater transparency and the company has already improved the make up of the board to include more independent directors. The greater transparency promised will be welcome not just as a rearguard action but to prevent further rumours before they begin if, as Omnicom insists, there is nothing to hide.

This article was first published on Media Week