NFO Soars on Interpublic Acquisition Deal

Interpublic will buy NFO in a stock swap valued at $580 million.
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Updated from 4:15 p.m. EST

Interpublic Group of Companies

(IPG) - Get Report

, the second-largest advertising holding company in the world, said Monday that it was acquiring consumer research firm

NFO Worldwide

(NFO) - Get Report

in a stock swap valued at $580 million.

Under the terms of the deal, NFO shareholders will receive Interpublic stock valued at $26 for each share of NFO stock, an 85.7% premium over NFO's closing price Friday.

Interpublic justified paying a hefty premium for NFO by noting how complementary the unit is to its other business lines. "This is a business we're not in," said Sean Orr, chief financial officer at Interpublic. "The opportunities for cross-selling their business with some of ours are there in ways that we can't do with our agencies, which compete with one another."

Interpublic, which recently consolidated its Internet marketing operations into a new group dubbed

Zentropy Partners

, will also examine how that new unit can be enhanced by the acquisition of NFO, Orr said. "We're certainly exploring how those two business will play together."

Shares in NFO shot up Monday after trading was delayed for much of the day. NFO settled up 8 1/4, or 59%, to 22 1/4, while Interpublic ended down 2 5/16, or 4%, to 55 3/4.

The deal was announced as NFO warned it expected a steep shortfall in earnings during the current quarter, which it said would range between breakeven and 5 cents a share -- far below Wall Street's expectations. The analysts' consensus was for earnings of 28 cents a share, according to a survey by

First Call/Thomson Financial

.

NFO said earnings-per-share estimates for 2000 should be revised downward from current analyst estimates to reflect the company's fourth-quarter earnings and to reflect certain investments the NFO is now planning to make in the next year. The company also said it will also record fourth-quarter after-tax charges of $15 million to $20 million.

NFO attributed its earning shortfall to lower-than-expected revenues in its domestic financial services and high-tech/telecommunications businesses, and lower-than-planned revenues in Europe because of the weakening euro as well as slightly lower-than-planned local currency growth.

NFO's fourth-quarter difficulties did not discourage Interpublic from pursuing the deal, Orr said. "We didn't see those problems as systemic; they're limited to a narrow portion of their business."

Phil Geier, Interpublic's chairman and chief executive, said in a statement that the acquisition of NFO advanced the company's strategy of providing clients with a wide array of companies in marketing communications and marketing information.

Greenwich, Conn.-based NFO's clients include

Coca-Cola

(KO) - Get Report

and packaged goods giant

Procter & Gamble

(PG) - Get Report

. The company claims more than $425 million in annual revenue.

William Lipner, chairman, president and chief executive of NFO, called IPG the "right strategic partner" to help the company accelerate its growth.

Interpublic's largest agency subsidiaries include

McCann-Erickson WorldGroup

and

Lowe Lintas & Partners

, both based in New York.