Sir Martin Sorrell’s WPP is to acquire Grey Global for £845 million in a deal that brings it neck and neck with US-owned Omnicom for the title of the world’s largest advertising agency.
WPP saw off competition from French advertising group Havas and San Francisco-based private equity firm Hellman & Friedman with a knockout bid that values Grey at $1,005 a share, significantly higher than the $900 a share it had been expected to pay.
The acquisition by WPP will create an advertising and public relations group with revenues of around £4.8 billion, putting it on a par with Omnicom, which had net sales of £4.78 billion last year. WPP already owns J Walter Thompson, Ogilvy & Mather and Young & Rubicam.
The purchase of the New York-based Grey Global also brings with it the account of world’s largest advertiser Procter & Gamble, as well as drinks group Diageo and the pharmaceuticals giant GlaxoSmithKline. Grey had been the only major advertising agency not to be owned by another group.
Sir Martin Sorrell said: “The addition of Grey Global Group to WPP will bring a number of benefits to our clients, our people and our shareowners. In addition to broadening our relationship with a number of our leading clients, Grey will bring access to new clients, strengthen our activities in advertising, media investment management, public relations, healthcare and direct and interactive.”
However, not all believe that an acquisition was the right move for WPP. A statement issued from global finance group, Lehman Brothers, said it was fairly sceptical on the needs and benefits for WPP acquiring Grey, with this potentially having a negative knock-on effect for WPP’s stock.
It is understood that Grey Global’s chairman and controlling shareholder, Ed Meyer, will make about £145 million from the sale of his stake in the company. He owns around 20% of ordinary shares in Grey but more than 70% of the important voting stock.
Meyer will sign a new employment agreement with WPP that will see him continue as chairman and chief executive of Grey until at least the end of 2006. He will also remain at the helm of Grey Worldwide until a successor is appointed sometime within the next six months.
Meyer said: “Grey’s greatest asset is its people, and while the ownership structure will change, our day-to-day business relationship with our clients will remain unchanged and our commitment to do great work will continue to be our passion.”
WPP’s successful acquisition could give rise to difficulties for one of the losing bidders, Havas, which entered the contest in what some are seeing as a last ditch attempt to gain the scale it needs to compete with its larger competitors.
The move is also likely to intensify pressure for further consolidation in the global advertising and marketing services sector. WPP has been moving to strengthen its operations recently and last year beat off competition from Publicis to acquire Cordiant Communications.
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