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International: Grey Global Group goes on the block

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International: Grey Global Group goes on the block

Grey Global Group has hired Goldman Sachs to sell the company, triggering a scramble to acquire advertising's last independently owned holding company.

Executives familiar with negotiations said Publicis Groupe, WPP Group and Japanese giant Dentsu are already in the chase. One executive said JP Morgan Chase, as well as Goldman Sachs, has been tapped by the 77-year-old chairman-CEO of Grey, Ed Meyer.

Previous talks

Grey and Havas, the sixth-largest holding company, have had on-and-off talks over the years though neither company has admitted to getting as far as merger talks.

Grey is a fraction the size of Omnicom Group, WPP, Interpublic Group of Cos. and Publicis, the top four agency holding companies by revenue. But Grey's stock has outperformed all four since the ad market began to rebound in May 2002. Grey ranks No. 7 globally, with revenues up 9% to $1.3 billion in 2003 on net income of $29 million. It employs around 10,000 worldwide and had U.S. revenues of $547 million in 2003.

Stock action

The first indication of Grey's intent to sell came at the start of this week when the company's stock soared to an all-time high on Tuesday, jumping to $833 a share in the second day of heavy trading. Grey trading volume totaled 48,282 shares on June 21, the third-highest trading volume on record and biggest since 1995. That was far above the usual daily trading volume of below 3,000 shares. Grey hit another high of $869 June 23. It dropped slightly yesterdayin unusually light trading.

Grey is firmly under the control of Mr. Meyer, who owns 13% of Grey common stock and 58.7% of Class B stock. He has the power to elect all board members. Mr. Meyer extended his management contract by a year, taking it through Dec. 31, 2005, according to a Securities and Exchange Commission filing last month.

Grey Advertising was launched in 1917 by Lawrence Valenstein, and employed such advertising legends as Bill Bernbach and Ned Doyle. Mr. Meyer was named president in 1967, 10 years after his arrival as a vice president and account supervisor. The company went public in 1965, and was billing $168 million the following year.

Longtime clients

It has since grown to include a major media buying and planning operation and most recently a branded entertainment unit. Procter & Gamble Co. is Grey's biggest account, generating 10.6% of 2003 revenue. P&G has been with Grey for more than 40 years. Other clients include Mars/Masterfoods, Diageo and GlaxoSmithKline. Grey's top 10 clients have been with the company for an average of 23 years.

While it is as yet unclear what Grey's future will be, Mr. Meyer was quoted in the Financial Times earlier this week as saying: "There are three reasons I would leave: There is no more to be done; I am no longer productive; or the agency is not doing well and since I'm the leader, I ought to take the fall. None of these has happened yet, but one of the them will."

He also discussed his legacy, saying: "I want to leave a legacy of an agency that had a strong creative reputation. [The company] is first class everyway else -- not first class [in creativity]."

Publicis and P&G

P&G is a major client at Publicis, and a move to acquire Grey Global would no doubt help the Paris-based holding company retain its hold on the packaged-goods giant.

A purchase by WPP would raise any number of conflicts, not least with Unilever, a rival to P&G.

Source: Adage


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