Ed finally wants to dance, but Grey finds few partners

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Rival agencies spent two decades eagerly eyeing Grey, waiting for Ed Meyer to sell. But now that he's finally put his empire on the block, only WPP appears to be willing to buy the whole thing.

With the Japanese companies ruling themselves out and Publicis Groupe announcing that it only wants parts of Grey Global Group, Mr. Meyer appears to have three viable alternatives left: sell to WPP, bring in a private-equity firm or take Grey off the market.

At least one major private-equity firm, Hellman & Friedman, has shown interest, Advertising Age has learned. Other players, most notably Publicis, are poised to go after parts of Grey that might become available if a private-equity group was to buy it.

WPP Group soon will begin a due diligence review, though it hadn't signed an investment banker as of late last week. Merrill Lynch, which has worked with WPP on other deals, is a strong candidate. Chairman-CEO Meyer, who in May quietly hired Goldman Sachs and J.P. Morgan Chase & Co. to explore options, declined to comment.

open to pieces

Publicis was the most logical buyer for Grey, since they share a key client, Procter & Gamble Co., and Publicis would benefit from Grey's strong marketing services. But Publicis Chairman-CEO Maurice Levy last week dropped out as a potential bidder for all of Grey, saying it did not fit strategic plans. He left open the door to buying pieces of the company.

How P&G viewed a potential merger of its two main ad firms is uncertain. The company generally prefers two sources for marketing services, and one executive said P&G told Publicis and Grey it wouldn't accept a merger. Mr. Levy said: "P&G never made any comment to us regarding Grey."

The paucity of bidders at first seems odd. Another holding company, True North Communications, received bids from four rivals, held talks with a fifth and considered a private-equity deal before selling to Interpublic Group of Cos. three years ago. As it happens, Interpublic pursued True North only after getting rebuffed on overtures to Grey.

growth-buying era over

It's a different world now. Agencies are getting hammered on fees, industry growth is slowing and money is shifting from advertising to other marketing services. The era of buying growth is over.

"It's just bad timing," said Joseph Stauff, analyst with Schwab Soundview. Mr. Meyer, CEO since 1971, may have waited too long to sell. Given Grey's weak profit margins, he may have a hard time getting a premium price for what amounts to a fixer-upper.

When Publicis dropped out as a possible bidder for the whole company, Grey's stock fell to almost where it stood before the first media reports, June 25, that Grey was in play. It's a buyer's market, putting WPP in a strong position to drive a good deal.

WPP won't comment about plans. But if WPP Group Chief Executive Martin Sorrell buys Grey, he is sure to move quickly to cut jobs and other costs at Grey, under the imperative that the deal not dilute WPP's 2005 or 2006 earnings. Analysts are skeptical about a WPP/Grey combination. "Let him fish, but he doesn't have to buy it," said Michael Nathanson, analyst with Sanford C. Bernstein. "Our [investor] client base would be upset if [WPP] bought this and it didn't make financial sense."

Mr. Meyer, 77, has other options. He could take Grey off the block. That in turn could open subplots. Mr. Meyer, who owns 20%-plus of Grey and controls 70% of voting shares, could sell shares over time to provide liquidity and diversify his family's portfolio.

Mr. Meyer also could bring in a private-equity firm. Warren Hellman, chairman of Hellman & Friedman, has shown interest. His firm bought Young & Rubicam in 1996, took it public and helped to sell it to WPP; he left WPP's board last year. Mr. Hellman is believed to have recently approached WPP about teaming up on a Grey deal, but WPP decided it didn't need a partner.

rumors rampant

H&F separately is said to have rejected a query from French ad firm Havas to bid together for Grey. H&F and Havas declined to comment.

Private-equity rumors were rampant last week. Mr. Nathanson bets Grey's bankers, trying to drum up interest, are enticing private firms to take a look. Such a deal could take various forms. A breakup, whether done by a private-equity firm or by Grey directly, could attract a pool of potential buyers. Publicis and conceivably Omnicom could be interested in media shop MediaCom and Grey Healthcare Group; Aegis Group might eye MediaCom; WPP and Havas could look at ad agency Grey Worldwide.

contributing: jack neff

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