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Few Suitors Eye Grey

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Havas is in the early stages of looking for private-equity investors to help finance a purchase of Grey Global Group, sources said last week. Alain de Pouzilhac, chairman of the French holding company, was said to have been in the U.S. last week meeting with potential investors.

Few, however, think that Havas, which issued a fiscal-year 2003 profits warning in February, has much of a chance to line up the investors it needs. After paying $2.1 billion for Snyder Communications in 2000—a rich price even by the dot-com valuations of the day—Havas has struggled with a heavy debt load, some nonperforming assets and the crippling industry recession.

After its retrenchment last year, Havas needs to find a way to expand its operations and escape the fate of other midsize independents like Cordiant Communications Group, which was swallowed up by WPP Group last summer. De Pouzilhac has already met with Grey CEO Ed Meyer, sources said. A Grey rep declined comment.

"Havas considers this to be very important—they want to find a way to make this happen," according to one source. A Havas rep did not return calls.

WPP is still the most likely bidder, although some observers said CEO Martin Sorrell thinks the price is too high, given the company's weak margins. Analysts estimate Grey's margins at 4-6 percent, while holding company peers like IPG, WPP and Omnicom have averages of 13-15 percent. Grey's asking price has been pegged at close to $1,000 per share, or $1 billion.

According to the most recent filing with the SEC on March 21, Meyer owns 238,352 common shares of Grey, which at $1,000 a share would net him about $240 million in an acquisition, not including options, bonuses and other factors.

While Grey's investment advisers are also looking at bringing in private investors as an alternative to an outright sale of the company, that scenario may be a more difficult option. Investors would not have a particularly attractive exit strategy, unlike when Young & Rubicam brought in San Francisco investors Hellman & Friedman in 1998 before launching an initial public offering.

"Ed may have waited too long to cash out," said one source.

Merrill Lynch, acting on behalf of London-based WPP, is expected to start due diligence this week, a process that's expected to take a month. For Sorrell to have taken his interest this far indicates to some that Unilever has given its blessing to the acquisition, which would include flagship client—and Unilever archrival—Procter & Gamble. A Unilever rep could not be reached for comment; nor could a P&G rep.

It is assumed that WPP would fold Grey into a network such as Red Cell—which is not aligned with Unilever—or keep it separate.

Grey's investment bankers, Goldman Sachs and JP Morgan Chase, saw expectations of an auction process ended last week when Publicis CEO Maurice Lévy told Le Figaro he would not make an offer for all of Grey. "Deals should not be made just to move up the world rankings," he said. Reached afterward, he told Adweek: "People were very surprised by my decision not to go after Grey, to not want to move up to No. 3 [among global holding companies]. But response to the decision has been very positive."

Lévy has left open the possibility of buying parts of Grey that may be put up for sale. But it is thought that if WPP makes an offer, it would be for the entire company.

Sources and analysts have said Omnicom is not interested in buying Grey outright, despite CEO John Wren's interest in acquiring a global marketer like P&G, the kind of packaged-goods client that has multi-agency ties. Wren has had some success scooping up business from agency mergers that create conflicts. If any P&G business shakes loose from a Grey sale, Omnicom has a senior executive well positioned to run the business in Tim Love, who arrived in April from Saatchi & Saatchi, where he was a lead player on P&G and for 10 years before that at D'Arcy. Love is currently running Nissan.

An Omnicom rep declined comment.

Grey received bad news last week when it lost out in the $2.5 billion shootout for P&G's North American communications planning account. P&G gave the business to Publicis' Starcom MediaVest, a roster shop, and Aegis Group's Carat, which has not worked for the client. Havas' Media Planning Group, hoping to break into the P&G fold, was also passed over.