Shareholder sues Grey, WPP in an attempt to halt merger

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A Grey Global Group shareholder has sued Grey Global Group, all four of the company's directors, WPP Group and Abbey Merger Corp., a wholly owned WPP entity, in an effort to stop the pending Grey Global Group-WPP Group merger.

Plaintiff David B. Shaev, in a complaint filed Dec. 17 in New Castle County, Del., charges Grey directors with breach of fiduciary duty and alleges that the deal harms Grey shareholders because its terms reduce the amount of money available to Grey shareholders upon the transaction's close and also disallow certain tax deductions. The suit challenges a $54.5 million payment to Grey Global Group's Chairman-CEO Ed Meyer by WPP Group to be paid when the deal closes. Shareholders, the suit claims, are injured not only because their take would be reduced but also because Internal Revenue Service regulations disallow deductions for such a payment, again, reducing shareholders' return.

A Grey spokeswoman said the company had no comment on the suit. A WPP spokesman had no comment.

analysis questioned

Grey Global Group on Sept. 13 accepted an offer to be bought by WPP Group in a half-cash, half-stock deal initially valued at $1.52 billion. That agreement was reached after three suitors-WPP Group, private-equity firm Hellman & Friedman and French ad firm Havas-submitted bids. Hellman & Friedman and Havas both offered all-cash deals.

The suit alleges that Grey directors Julian Brodsky and Harold Tanner, who joined Grey's board in April and May 2004, respectively, did not fully explore and independently analyze the potential transaction with WPP. Prior to their arrival, the suit claims, Grey and WPP reached an informal agreement that WPP would buy Grey, and as part of that arrangement, certain amendments to Mr. Meyer's employment contract were made. These included a one-year extension of his employment contract with Grey and a $3 million termination payment if he elected to leave his employment "for good reason." Messrs. Brodsky and Tanner, the suit claims, were not "given the opportunity to do their own independent research and analysis."

In addition to asking the judge to halt the pending WPP-Grey deal, plaintiff's attorneys also ask that the defendants account for "damages sustained by the company and shareholders" and also pay plaintiffs attorney and court fees. The WPP-Grey deal is under evaluation by the European Union's regulatory body, the European Commission. After that, the merger must be approved by Grey shareholders. Mr. Meyer owns more than 20% of Grey but controls 70% of voting stock through his shares plus trusts and stock plans he oversees.

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