CLIENT CONFLICT IMPLICATIONS OF GREY GLOBAL'S SALE
And Why P&G's Ad Accounts Are the Deal's Wild Card
GREY GLOBAL GROUP GOES ON THE BLOCK
Hires Goldman Sachs to Investigate Possible Sale
GREY GLOBAL GROUP STOCK PRICE HITS ALL-TIME HIGH
No Obvious Explanation for Heavy Trading Activity
Publicis' pronouncement was unexpected. It had been considered one of the two leading contenders to buy Grey last month after the independent U.S. ad firm hired investment bankers to explore alternatives. Publicis' move could strengthen rival contender WPP Group's play to buy Grey.
In an interview published today in the French newspaper Le Figaro, Publicis Chairman-CEO Maurice Levy said Publicis' interest in Grey "is less acute" than it was prior to Publicis' acquisition of Bcom3 Group in September 2002.
He also said that, for various reasons, it is not necessarily in the best interest of Publicis to make a possible offer for the whole of Grey Global.
"An acquisition such as this cannot be made simply to earn a better position in the worldwide ranking of global communication groups," Mr. Levy said in a transcript of the Le Figaro interview released by Publicis. "All the acquisitions that we undertook until now were chosen according to two interrelated criteria: the interest of our clients and our strategic direction. We must never forget that all that we have done and produced at Publicis Groupe is entirely guided by the interests of our clients and of their brands, and to better serve their performances. On this point, the advantages are thin.
'Not in the best interest'
"[W]e must acknowledge that if we have managed to be successful until now, it's mainly because our acquisitions made great sense, and their integration, the major element of such an operation, could be realized smoothly thanks to relevant strategic considerations," Mr. Levy continued. "All this leads me to believe that it is not necessarily in the best interest of Publicis Groupe to make a possible offer for the whole of Grey Group."
A Publicis spokeswoman said Mr. Levy's comments were intended to communicate that Publicis has no interest in buying Grey Global globally but that the company may be interested in some unspecified parts of Grey.
Publicis' past acquisitions have increased the company's debt load, but Mr. Levy denied in the interview that the company was nixing a possible Grey bid because of financial limitations. "We have without question the means to proceed with an acquisition of this size and nature, notably through payments in stock or by calling upon a capital fund if there was a necessity for cash payment," he told the paper. "The decision is purely a strategic one."
Ad company rankings
Grey is the world's No. 7 ad firm by Ad Age's ranking and the industry's biggest remaining independent. Publicis ranks No. 4, but an acquisition of Grey could put it in position to displace Interpublic Group of Cos. as No. 3, behind Omnicom Group and WPP.
"We are very well positioned in fourth place, very far in front of the fifth place competitor [Japan's Dentsu], with strategically strong positions and brands that balance each other well," Mr. Levy said in the interview.
"It is often more difficult to resist an acquisition than to surrender to temptation," he added, in what might be viewed as commentary on his acquisitive rival, WPP's chairman-CEO, Martin Sorrell. "Once more, I would like to stress the importance of the situation afterwards. It's relatively easy to make plans, to design organizational charts and to imagine the results. The true success is not the negotiation, but the integration within one clear strategy."
Grey's drifting stock price
Mr. Levy's comments came as Grey's stock price has been drifting lower. Grey's stock soared from $754 to $850 in the four days before the first media reports appeared June 25 that Grey had hired investment bankers to explore a sale. The stock then jumped to $895 June 25, and it kept rolling to an all-time closing high of $990 July 2, before the holiday weekend. Last week, the stock retreated, and it closed the week at $950 a share. The stock hit a bottom of $901 today after Mr. Levy's comments appeared in the French newspaper, but then recovered a bit to trade at $916 early this afternoon.
The sharp rise in Grey's stock before the sale talk became public late last month gave the shares less upside. The market, in effect, is betting that any Grey deal wouldn't be much above where Grey was trading when sale speculation became public.
Grey's price tag, based on its current price, is about $1.3 billion.