Down to the Wire for Trio of Grey Suitors

NEW YORK. As Wednesday’s bidding deadline for Grey Global Group nears, serious offers are expected to come from WPP Group, Havas and San Francisco-based private equity firm Hellman & Friedman, which has previously bought stakes in Young & Rubicam and Digitas, sources said.

Havas, which most recently has been linked with private equity partners such as New York-based Quadrangle, ended up securing $1.2 billion in financing from Deutsche Bank and Societe Generale Group. The cash-strapped French holding company is also expected to raise $603 million to pay off the $682 million in convertible bonds due in 2006, which would have further stretched Havas’ finances.

It is expected that the bidding will come down to WPP and Havas. H&F’s offer, said to be in the $800-850 million range, is believed not to have the support of key Grey clients such as Procter & Gamble. Sources said P&G has concerns about the uncertainty regarding the ultimate ownership of Grey in the aftermath of a sale to H&F, which views Grey as a short-term investment to be resold after revamping the holding company’s finances. Grey-led by CEO Ed Meyer, who has run the company since 1970 and exercises voting control over some 70 percent of its shares-has seen average operating margins in recent years of about 4-6 percent, compared with 13-15 percent at companies like WPP.

Any offer from WPP is not expected to top Grey’s current market capitalization of $1.25 billion. Havas’ bid may come in at $1.45 billion. Representatives from WPP, H&F and Grey declined comment. A Havas representative said the company has not decided if it will make an offer. However, one knowledgeable source said an offer is definitely planned. "[Top Havas executives] are all around the table in Paris, crowing about how they’re in the big leagues again," the source said. "But whether or not a deal goes through, at least they’ll have the [2006] bonds taken care of."

Havas, hit hard by the recession and nonperforming corporate assets, is itself viewed as a potential takeover target. A deal would bolster its presence in the U.S. and shore up its relationship with shared Grey flagship client P&G.

"[Havas CEO Alain] de Pouzilhac is desperate," said one source. "This deal will make Havas very, very stretched financially."

It is still unclear what role Havas investor Vincent Bollore had in making a decision to bid for Grey. This year, his French holding company, Bollore, increased its stake in Havas to 8 percent, and de Pouzilhac has been quoted as saying that Bollore would need to sign off on a Grey bid. Late last week, Bollore was said to be included in a meeting with Havas and Deutsche Bank. There have also been suggestions that Bollore wants to bring former Havas chairman Pierre Dauzier back into senior management at the holding company, possibly in de Pouzilhac’s role. De Pouzilhac did not return calls for comment; Bollore could not be reached.

One source speculated that should Havas be successful in its Grey bid, Havas’ bankers might push for a strong North American finance executive.

For WPP, a Grey acquisition does not fit with an expansion strategy that is focused on areas outside the U.S. and in marketing-services disciplines. However, one executive at a WPP operating unit said, "[WPP CEO] Martin [Sorrell] sees this industry as being even more consolidated than it already is."

Some observers speculate that Sorrell might sell Grey’s media unit, MediaCom, an asset that could appeal to de Pouzilhac, if WPP were to prevail in a bid for Grey. WPP media companies MindShare, with about $19.2 billion in billings, and Mediaedge:cia, with $14.6 billion, rank Nos. 2 and 7 in the industry, respectively. MediaCom is No. 8 with $13.6 billion, and Havas’ MPG (Media Planning Group) comes in at No. 10 with $8.6 billion. De Pouzilhac has been looking for an acquisition to boost MPG.

Press leaks about earlier interest from other private equity firms, such as Blackstone Group, Kohlberg Kravis Roberts and Providence Equity Partners, were viewed largely as an attempt to create more bidding interest in a narrow field of possible acquirers. None of those parties is expected to offer bids this week. A representative for KKR declined comment; reps at Blackstone and Providence were not available.

This story updates an item posted on Sept. 3 with additional information on the anticipated bids from Grey’s suitors.

See on photo: WPP CEO Martin Sorrell