Late Thursday Update

GREY GLOBAL BIDDERS RAISE ANTE

Negotiations Moving Quickly; Weekend Deal Possible

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NEW YORK (AdAge.com) -- Hellman & Friedman and Havas are said to have raised their bids today for Grey Global Group, putting all three bids at or above $900 a share or at least $1.25 billion.
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Hellman, a San Francisco private-equity firm, moved its bid to more than $900 from the $875 to $880 a share it offered in an opening bid Sept. 8, according to an individual close to the situation.

Havas goes to $900
Havas, the French ad firm, increased its offer to $900 from $850, the individual said.

WPP Group, the third bidder, started with a bid above $900, and it wasn't clear late today if it had raised the offer.

Grey stock closed today unchanged at $940, signaling traders are betting on higher offers.

Buyout negotiations are moving quickly, with signs a deal could happen as soon as this weekend and be announced on Monday, Sept. 13.

Two all-cash offers
Offers from Hellman and Havas were said to be all-cash; WPP was offering stock and cash. Since Grey began soliciting offers early this summer, Ed Meyer, Grey's chairman-CEO and controlling shareholder, has been thought to favor a deal heavy in cash.

Havas' board, in a Paris meeting at 11 a.m. New York time Sept. 8, approved management's recommendation to submit a bid by a vote of 10 for, two against and one abstention, according to an individual familiar with the situation. The individual said Havas submitted its first bid at the formal bidding deadline of 3 p.m. Sept. 8, the hour when Havas issued a press release announcing its intention to enter a bid.

Debt-laden Havas
Havas would pay for Grey with funding from German investment banker Deutsche Bank and Calyon, a subsidiary of French firm Credit Agricole. But it's not clear debt-laden Havas has the backing to go above $900.

Havas also faces what one observer termed "executional risk" -- the risk to Grey that Havas might have trouble closing a deal if Havas shareholders balk. So the battle for Grey could come down to WPP vs. Hellman.

WPP and Hellman are well acquainted. Hellman bought Young & Rubicam in 1996, took it public and then helped to sell it to WPP in 2000. The buyout firm's chairman, Warren Hellman, left WPP's board last year. Mr. Hellman is believed to have approached WPP several months ago about teaming up on a Grey deal, but WPP decided it didn't need a partner. Hellman since then teamed up with another buyout firm, Kohlberg Kravis Roberts & Co., to pursue the Grey bid.

'Strategic buyer' advantage
A so-called strategic buyer like WPP -- that is, a company already in the agency business -- in theory could afford to pay more for Grey than a financial buyer like Hellman. That's because a strategic buyer has more opportunities to find synergies with its other operations.

WPP Group Chairman Martin Sorrell has the financial means to raise his bid, but many investors have been hoping Mr. Sorrell would stay out of a bidding war for Grey, a mid-tier agency group with weak profit margins but strong clients such as Procter & Gamble Co. P&G, Grey's largest client, accounted for 10.6% of Grey's $1.3 billion 2003 revenue.

Just what Hellman's exit strategy would be is an open question. There are opportunities to cut Grey's overhead, and Hellman could clean up the finances to get Grey ready for a sale to a rival or in a public offering. But too much cost-cutting could damage the quality of service to clients such as P&G, a Grey client for more than 40 years.

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