• by Tom Siebert , December 11, 2006

Wall Street reacted harshly to the news that IPG's DraftFCB lost the $580 million Wal-Mart account--the stock dropped 79 cents a share (or 6.4%) to $11.54. Marketing-industry analysts, however, were far less volatile. They say the development will likely have more negative long-term "psychological than financial" effects on IPG, the agency's holding company.

"From a financial perspective, this has a minimal impact on IPG," wrote Jonathan Jacoby of Banc of America Securities, adding that his firm previously estimated about $30 million in revenue to IPG from the Wal-Mart account, or about 0.5% of total 2007 revenues.

"Clearly, this is a disappointment in the turnaround story, but it really is more psychological than financial," Jacoby added. "This is not a financial reporting material weakness issue. We are more concerned with any potential fall-out at DraftFCB that could result..."

Bank of America maintained a "neutral" rating for IPG.

Credit Suisse Equity Research was equally circumspect: "We view the loss as disappointing as this would have been a good account to leverage into other new business wins and more business from Wal-Mart itself," wrote Credit Suisse's Debra Schwartz. "That said, this win was more about the headline than the financial impact. ... DraftFCB has had a strong year in new business wins, including Citigroup, Wyeth, Atari, and Novartis, among others.

"We believe this account loss is isolated to Wal-Mart and do not expect it to have a ripple effect on other account defections," Schwartz continued. "The account loss follows Julie Roehm, senior vice president of marketing at Wal-Mart and Sean Womack, vice president of marketing, leaving the company earlier this week. We expect speculations as to the nature of the defection (we have heard several already), but do not believe there were improprieties at DraftFCB. We expect Howard Draft will remain head of the agency."

Schwartz said the stock faces near-term pressure as investors question the broader meaning of the lost business. "We think the long term story remains intact. We believe without the Wal-Mart business, the company can reach its financial targets, and still think it can return to growth in 2007, a year earlier than promised."

Credit Suisse will not change its estimates for the company, maintaining an "Outperform" rating.

Deutsche Bank Securities analyst Paul Ginocchio wrote to his firm's clients: "We make no changes to our estimates, as we did not raise our numbers when IPG won Wal-Mart." He says there remains a "significant upside" to expectations for IPG's fourth-quarter earnings.

Bear Stearns' Alexia Quadrani noted that the market "has already reacted, and we maintain our outperform rating as we believe the company is making progress on its turnaround plan." She said that Wal-Mart's rescinding of the business was not an "indictment" of DraftFCB or IPG's ability to win future business.

IPG's stock was up slightly Friday, to $11.60 at 4 p.m.

In another development that DraftFCB said was unrelated to the loss of the Wal-Mart business, the firm's chief growth officer, Tony Weisman, is leaving the firm to head up the Chicago office of Digitas.

"We can confirm that Mr. Weisman is leaving the company," a DraftFCB spokesman said. "He recently informed us of his intention to take a new job as head of Digitas Chicago. Since he is going to work for a competitor, we accepted his resignation, effective immediately."