LONDON: The WPP Group announced today that it has agreed to purchase Grey Global for $1.52 billion, half in cash and half in WPP shares.
The final figure was significantly higher than earlier sales estimates of approximately $1.3 billion.
Grey chose WPP over competing bids from Paris-based Havas and San Francisco-based private equity firm Hellman & Friedman. Havas Chairman and CEO Alain de Pouzilhac said in a statement Monday that "the price required by Grey would not allow us to generate sufficient added value for our shareholders."
Grey founder Ed Meyer will stay on for at least two more years as Chairman and CEO of the company, an offer thought to be a significant factor in his choice of buyers. After two years, he will be offered a seat on the WPP board.
The acquisition of Grey could soon allow WPP to surpass Omnicom as the world's largest advertising company.
In a conference call held Monday morning, WPP CEO Sir Martin Sorrell said that "Grey represents a highly complementary strategic fit" which will strengthen WPP's relationship with multinational clients. He cited Asia and Latin America as future growth areas for the company.
Sorrell noted that PR represents slightly less than 10% of Grey's current business, but called Grey-owned GCI "an important addition to our PR portfolio."
"We will have as a result of this transaction a clear leadership position in media," Sorrell said, adding that the biggest prize for WPP could be current Grey client Procter & Gamble, which spends between $4.5 and $5 billion dollars per year on advertising.
Some analysts were wary of the benefits of acquiring Grey because of the company's historically low operating margins.
Meyer explained that "historically, [Grey]'s been run somewhat familially," and that increasing its single-digit margins "hadn't been a focus" until the last few years. But WPP projects a doubling of Grey's margins to 11.5% by 2006, and Sorrell believes WPP will exceed the cost of capitalization by 2007.
The deal is expected to be approved by shareholders and the European Union by December 2004 or January 2005.