WPP wins the battle for Grey Global

SIR Martin Sorrell's WPP has bought the largest remaining independent advertising agency in the world, Grey Global, for a cash and shares mix worth $1.52bn (£845m).

In a hard-fought battle that began in July, WPP saw off a rival bid from a consortium of US venture capitalists and a less valuable and possibly last-ditch pitch from French group Havas.

Adding back the $172m cash in Grey's balance sheet, WPP is paying $1.31bn to place the world's seventh-largest ad agency alongside its own J Walter Thompson, Ogilvy & Mather and Young & Rubicam.

WPP will now have revenues of $4.8bn, making it equal number one in the world with Omnicom.

The deal will make more than $300m for Ed Meyer, the 77-year-old architect and 20% owner of Grey, who earned £3.3m last year.

Sorrell said: 'This is broadly about clients. It takes us into new areas with new clients and gives us the opportunity to capitalise on relationships with existing clients.'

The jewel in Grey's crown is Procter & Gamble, the world's largest single advertiser with brands such as Dreft, Fairy, Head & Shoulders, Olay, Pampers, Pringles and Vicks. Other global players among its clients include Diageo, Hasbro, Mars, Novartis, Slim-Fast and Warner Bros. Overlapping clients include BAT, Pfizer, GlaxoSmithKline and Nokia.

Sorrell said the acquisition would improve WPP's geographic spread. Grey is larger in Europe than in the US and has strong operations in Latin America. It has good healthcare, media planning and buying and direct interactive advertising businesses.

He does not expect competition problems even though the combination will have between 25% and 30% market share in some parts of Europe.

'At just over one times revenue, I think shareholders will recognise this is a very good deal,' said Sorrell.

His main rival was a joint bid from private equity firms Hellman & Friedman and Kohlberg Kravis Roberts. WPP expects the deal to add to earnings in 2005. It has already identified synergies of £11m. Further gains should come from staff productivity, combining property and IT infrastructure and greater purchasing power.

Sorrell said he expected to be able to start improving Grey's margins, historically lower than those of other advertising agencies, and did not rule out job cuts, saying 'there will be consolidation at the parent company'.

Meyer welcomed the deal, saying Grey and WPP had 'shared values and strong commitment to superior client services'. He will stay on until at least December 2006 and join the WPP board. Grey employs 10,500 people in almost 90 countries and had revenue of $1.3bn in 2003.

Today's deal leaves serious question marks over the future of Havas, the French advertising agency that joined the bid battle at the last moment in what industry watchers saw as a last-ditch attempt to hit the critical mass enjoyed by the world's largest agencies.

Havas and British rival Aegis are the last remaining independents of any scale.

ALTERNATIVE Investment Market-listed ad agency M&C Saatchi is expected next month to announce the opening of an office in Beijing as part of its Asian expansion. The company raised £7.2m when it listed in July.

Asian regional head Tom Dery said M&C Saatchi may also open offices in Indonesia, Thailand, India and South Korea this year. It already has offices in Shanghai, Singapore, Hong Kong, Kuala Lumpur, Taipei and Tokyo.

Saatchi will hold its worldwide partners' meeting in Shanghai next month, showing the importance it attaches to China.