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John Rogers of Ariel Investments Comments on Interpublic Group

August 17, 2012 | About:
Holly LaFon

Holly LaFon

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From John Rogers' second-quarter letter:

For example, Interpublic Group of Cos., Inc. (IPG) has the distinction of being one of the world's largest advertising conglomerates. When confronted with economic challenges, companies can and often do quickly scale back marketing and advertising to save money. And yet, IPG not only grew but was able to show margin expansion over the last four years—a period when tepid economic growth was a headwind. All the while, the company also managed to buy back half a billion dollars of dilutive convertible debt. In so doing, Debt/EBITDA substantially improved from 2.81x to 1.92x, which ultimately provided the company access to more favorable debt markets. This level of debt reduction, along with the company's repurchase of 52 million shares, has cut its diluted share count from 553 million to 438 million shares—a 20% decrease in shares outstanding. It is worth noting that even after this hefty $700 million spend, the company still had the ability to issue its first dividend in nearly a decade.


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