UPDATE 1-Activist Elliott Management sets its sights on IPG

(Adds background on industry, comments from source, analyst)

By Liana B. Baker and Jennifer Saba

July 24 (Reuters) - Activist hedge fund Elliott Managementhas taken a 6.7 percent stake, worth about $570 million, inadvertising firm Interpublic Group of Cos Inc, settingup a showdown that could result in a sale.

The $24 billion hedge fund run by Paul Singer disclosed in aregulatory filing on Thursday that IPG's shares "are undervaluedand represent an attractive investment opportunity." Elliottsaid it wants to "engage in a constructive dialogue" with thecompany's board of directors to maximize shareholder value.

A source familiar with Elliott's position in the U.S.-basedadvertising firm, that includes the agencies McCann Erickson andFCB, said it is gearing up to push the company on the auctionblock, hoping to attract IPG's larger competitors as buyers.

IPG shares were up 1.5 percent at $20.15 in morning trading.A spokesman did not respond to a request to comment.

IPG is the No.4 ad firm in the world, with a market value of$8.4 billion. WPP is the largest agency, followed byOmnicom and Publicis.

"It seems reasonable to conclude there is interest increating a process to sell IPG," said Brian Wieser, an analystwith Pivotal Research Group. "One of the big challenges intrying to do this with a big agency holding company is that itcan be very disruptive to existing business."

Wieser thinks that Japan's Dentsu Aegis is the mostlikely bidder for IPG.

IPG has long been rumored as a takeover candidate and thespeculation has only increased as the advertising sectorconsolidates. France's Publicis and U.S.-based Omnicom planned to merge in a $35 billion deal that would haveresulted in the world's largest advertising agency, billing itas a better way to compete in the digital arena.

That potential marriage collapsed as the two companiesclashed on culture and couldn't agree on leadership orstructure.

The consolidation points to the enormous pressures thattraditional ad firms are facing from digital platforms likeFacebook and Google, tech giants like Oracle and Adobe, as well as a host of VC-fundedstart-ups focused on turning the process of buying and sellingads into one that resembles electronic stock exchanges.

IPG's clients include General Motors, Unilever and Johnson & Johnson.

This is the second bet this week by Elliott Management,which invested more than $1 billion in data storage productsmaker EMC with an aim to push it to spin off its VMwareunit. (Reporting by Liana B. Baker and Jennifer Saba; Editing by NickZieminski)