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The European Commission determined WPP's merger application was incomplete, meaning WPP must provide more information to the European Union's regulatory authority.
U.K.-based WPP, the No. 2 advertising holding company, agreed in September to buy New York-based Grey, the industry's No. 7 firm, in a deal initially worth $1.52 billion.
Could delay closing
Grey has said it expected to wrap the sale in January. But the EU's move could delay the closing. The EU conceivably could reject the deal if it saw insurmountable antitrust issues.
The European Commission's review process will start over when WPP submits the requested information.
WPP in a statement today said the merger review procedure "will now be delayed until WPP and Grey are in a position to provide the further information requested by the commission. WPP and Grey continue to cooperate fully with the commission."
In an SEC filing by WPP today on a separate issue related to the Grey merger, WPP noted: "Due to the fact that regulatory and shareholder clearances have not yet been obtained, the completion of the transaction of Grey will not occur until at least early 2005."
The WPP-Grey merger required antitrust approval in the U.S. from the Justice Department and Securities and Exchange Commission and in Europe from the European Commission.
U.S. approval came Nov. 5 when the waiting period passed for challenges by U.S. regulators.
Phase I investigation
European regulators had until Nov. 26 to rule on the merger under a so-called Phase I investigation but had the option to extend that date by 10 additional business days. However, regulators yesterday told WPP its filing was incomplete.
"During the course of its initial analysis of the relevant markets, the commission has reached the view that it requires further information to complete its review," WPP said. The commission "has formally requested supplementary information to complement the original notification."
The Phase I review will begin again when WPP provides the added information. The commission also has the option to do a broader Phase II investigation that could take up to 90 business days.
The stock market shrugged off the news. In U.S. trading, WPP stock was down 5 cents late this morning to $53.84. Grey was down $4.07 to $1,076.17. Based on WPP's price today, its purchase of Grey for cash and WPP stock has a value of $1.65 billion.
Had not expected trouble
WPP and analysts have not expected the deal to have trouble getting antitrust clearance. WPP generated 41% of its $6.7 billion revenue last year from European operations (including the U.K.). If it had owned Grey last year, Europe would have accounted for 42% of WPP-Grey's combined $8 billion revenue.
A WPP filing with the SEC last month said: "WPP and Grey believe that the European Commission should clear the merger to proceed."
Paul Richardson, WPP's group finance director, noted in September that past WPP deals had all received European antitrust clearance at the Phase I stage. He said, "We've never been taken to stage two in the past and don’t expect to, but there's always a possibility."