Modem Media Cuts Staff in International Pullback

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Interactive agency Modem Media Inc. yesterday said it was pulling out of all international markets it had a presence in except for London and Sao Paolo in Brazil.


The Norwalk, CT, agency will close offices in Toronto, Munich and Hong Kong, laying off staff in those cities as well as reducing headcount by 90 people in domestic and foreign offices. It also will trim office space in Norwalk and London.


"What we found is that we had maintained the international locations as investments in markets that we were developing, but we found that given the local market conditions, we felt that we did not have the potential to reach the size and scale to be the dominant players in those markets," said Frank Connolly, chief financial officer of Modem Media.


The agency will divest local clients in its foreign offices over three months.


As a result of these moves, the company estimates pre-tax charges of $12 million and cash costs of $4 million for implementation. It also will absorb an impairment charge of $3 million to $4 million for adopting new goodwill accounting rules.


Despite the setbacks, Modem Media is projected to show revenue of $70 million to $75 million this year, "and the level of profitability is very strong going forward," Connolly said. Revenue last year was $103 million.


As of May 31, Modem Media had $45 million cash on hand. After the job cutbacks, it will have 310 employees worldwide in its Norwalk, San Francisco, London and Sao Paolo offices.


The 15-year-old agency has clients including General Motors Corp., Eastman Kodak Co., Kraft, Michelin, Delta Air Lines, IBM Corp. and Philips Electronics.


Interpublic Group of Companies Inc., a leading advertising agency holding company, owns 43 percent of Modem Media.


Connolly said the agency's retreat had much to do with the economy.


"Clients are cautious in their spending," Connolly said. "They're also watching the economic recovery in the U.S., and they're cautious about increasing their overall interactive marketing spending."


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