Analysts' price tag: $1.2 bil - Grey Global up for grabs

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For around $1.2 billion, one of the top holding companies will get a crack at the last major independent, and a big chunk of business from the world's largest advertiser, Procter & Gamble.

Advertising Age revealed last week that Grey Global Group has finally opted to put itself up for sale, hiring investment bank Goldman Sachs and contacting potential suitors. One executive said a second investment bank, J.P. Morgan Chase, has also been involved in exploring a sale for Grey. A spokeswoman for Grey had no comment.

Executives familiar with the negotiations said both Publicis Groupe and WPP Group have been contacted, and both have signed non-disclosure agreements. Other likely suitors include Japan's No. 1 and No. 2 holding companies, Dentsu and Hakuhodo.

It is not clear whether the world's largest holding company, Omnicom Group, will participate in a bidding war-it may prefer to sit on the sidelines and try to pick off unsettled clients.

Publicis is arguably the most obvious suitor since it shares P&G with Grey. However, some executives questioned whether P&G would want to concentrate so much of its business with one holding company. Publicis had no comment and P&G could not be reached. Publicis-backed Bartle Bogle Hegarty also handles some business from P&G archrival Unilever.

Other major marketers that spend big with Grey include BAT, Diageo, GlaxoSmithKline, Mars/Masterfoods and Volkswagen. While a number of these create conflicts for the likely front-runners in the acquisition race, in most cases suitors believe these marketers could be placated with firewalls between large agency brands.

Traders bid up Grey about 5% in aftermarket trading June 25 to a record $895 a share, putting a market cap of $1.2 billion on the company, about even with its $1.3 billion 2003 revenue. The price tag could climb higher if there is a bidding war. One analyst, who wished to remain anonymous, expects the company would be valued in line with its revenue.

the last jewel?

Grey, the world's seventh-largest holding company and considered one of the last jewels left to buy among agency holding companies, is a fraction the size of Omnicom, WPP, Interpublic Group of Cos. and Publicis, the top four holding companies by revenue. But Grey's stock has outperformed all four since the ad market began to rebound in May 2002. Grey had revenue up 9% in 2003 on net income of $29 million. It employs around 10,000 worldwide and had U.S. revenue of $547 million in 2003.

A Publicis acquisition would not be without a few client headaches, since the French holding company took on beverage giant Allied Domecq-a Diageo competitor. One of WPP's key clients is Unilever. In 2003, P&G accounted for 10.6%, or $139 million of Grey's revenue. No other client accounted for more than 5% of its revenue.

For Grey watchers, the signs of a sale were all there. The normally media-shy, 77-year-old Chairman-CEO Ed Meyer recently started doing the rounds. In March, he extolled Grey's virtues at conferences put on by Merrill Lynch and Bear Stearns, claiming that Grey's competitive advantage is that it has only one company in each marketing discipline, unlike the "Chinese menus" offered by rivals.

thinking long-term

"We have a very conservative financial management focused on long-term building of the business, not quarterly earnings," Mr. Meyer told attendees at the Bear Stearns conference. "This is ours for the long term."

Last week, Mr. Meyer sat for a profile with The Financial Times and talked about his legacy, and recently appointed Tim Mellors, president-chief creative officer, North America, a position that has been long vacant. Last week the stock began to soar to an all time high on near record volume.

"Why does anyone do those things?" commented one senior ad executive. "Because you want the attention of Wall Street."

Grey is firmly under the control of Mr. Meyer, who stands to benefit most from the deal (see story, right). He celebrates his 48th year with the company this year, having joined the company in 1956, rising to CEO in 1971. Mr. Meyer owns or has options for 13% of Grey common stock and 59% of Class B stock. Only last month he re-upped his contract, extending it through December 2005.

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