Interpublic's Quiet Facebook Stake: Cue the Client Conflicts
Interpublic (IPG)'s stake in Facebook, said to be worth $200 to $300 million, appears to present an interesting conflict of interest for its advertising clients. Why should they listen to IPG's ad agencies (such as Deutsch and DraftFCB) when they recommend spending money on Facebook, given that the parent company's stake only grows more valuable with every new dollar spent on the social networking site?
The FT said IPG's investment in Facebook was worth up to $300 million. Although IPG disclosed that it "agreed to acquire less than one-half of one percent of Facebook" in 2006, the word "Facebook" has merited nary a mention in the company's disclosures since then. It hasn't been a secret, however. Mediaweek reported the $200 million valuation back in January, and noted that IPG had paid less than $5 million to get it.
The timing of IPG's disclosures about Facebook warrants some discussion. On page 35 of its 2010 annual report IPG said in a discussion assets held on its balance sheet:
Certain of these investments, the most significant of which is Facebook, have significantly appreciated compared to their cost, but there can be no assurance as to the terms on which we would be able to dispose of any such investments.The FT added:
... as Facebook's valuation soared last year, thanks to robust trading on the secondary market, Interpublic realised it was sitting on a substantial stake, and was compelled to disclose it to the SEC."Last year"? Try 2007: That was the year that Microsoft (MSFT) bought a 1.6 percent stake in Facebook for $240 million, which would have made a roughly 0.5 percent stake worth about $80 million at the time. Four years later, IPG suddenly decided this was worth mentioning.
Why would IPG want to avoid publicity for what, in hindsight, was probably one of the best investments it ever made? One possible reason is that the stake stands uncomfortably at odds with the interests of its clients. The FT noted that to buy the stake, IPG had to promise to spend $10 million for ads on Facebook at a time when few clients wanted to be on it and the site had only 7 million users.
It's still not clear how useful Facebook is for advertisers now. And although I'm sure IPG's agencies don't deliberately talk up Facebook to prospective clients the issue will sit in the background whenever Facebook comes up: The value of IPG's stake in Facebook is dependent on the continued success of the site. Which is dependent on ad agencies buying space on it. Which is dependent on IPG persuading clients what a good idea Facebook is for advertisers.
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