News analysis: Meyer's control over board will shape nature of Grey sale

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Grey Global Group plays by Ed Meyer's rules because Ed Meyer rules. Look no further than the chairman's power on Grey's quartet of a board.

The board consists of Mr. Meyer and three outsiders. Mr. Meyer, who owns 20%-plus of Grey but controls 70% of voting stock, can elect all directors, according to Grey regulatory filings.

If the board has a tie vote, Mr. Meyer gets an extra vote to break the tie under Grey governance rules. That's never happened, but it shows the power held by Mr. Meyer, chairman-CEO since 1971.

concerns

Nell Minow, editor of the Corporate Library, an independent research firm specializing in corporate governance, said the extra-vote rule is "stunning." She added: "We have very serious concerns about this board's effectiveness in pursuit of shareholder interests."

Grey is officially up for sale, and Mr. Meyer, 77, is in a strong position to control the outcome. The 500-plus shareholders who own roughly 80% of Grey will come along for the ride-in the back seat.

Mr. Meyer can "exercise significant influence over our business and affairs," noted a March Securities and Exchange Commission filing. "This includes any determination with respect to mergers or other business combinations." Under Mr. Meyer's contract, Grey could be required to buy him out for cash at a market price if Grey agrees to a sale.

Grey, in confirming last week it had hired Goldman Sachs and J.P. Morgan Chase & Co. to explore "alternatives focused on enhancing shareholder value," ruled out a piecemeal sale of units. Ms. Minow said the board must consider a breakup if bidders propose it. "Once you've put the company up for sale, you don't control the outcome."

Ms. Minow said shareholders have one option if they don't believe Mr. Meyer, the board and Grey play fair: Sue. Shareholders, to be sure, have had little to complain about; Grey's stock over the years has outperformed most rivals'.

board shift

Grey declined to comment, and board members couldn't be reached or weren't available for comment.

Grey last quarter replaced two of its three outside directors. In April, Julian Brodsky, 71, succeeded longstanding director Mark Kaplan, 74, an attorney with Grey law firm Skadden Arps. In May, Harold Tanner, 72, succeeded Victor Barnett, 71, former chairman of Burberry. Mr. Brodsky is vice chairman and former chief financial officer of Comcast Corp. Mr. Tanner is president of Tanner & Co., a boutique investment bank. The third outside director is attorney Daniel Shapiro, 65.

Prospective bidders began due diligence last week, and Grey hopes to do a deal by summer's end. WPP Group is one likely "strategic" bidder. After few strategic buyers-companies in the industry-showed interest by a July 1 deadline, Goldman Sachs is said to have invited "financial" buyers including private-equity firm Hellman & Friedman to look at the books.

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