NEW YORK For the first time since 1970, Ed Meyer will have a boss. How does he feel about that?
"I'll let you know," Meyer said yesterday, referring to WPP Group CEO Martin Sorrell, whose $1,005 per share bid makes him the new owner of Grey Global Group and its operating companies come December. "I've known Martin for a long time. I'm quite comfortable with him. He's built a hell of a business for which I have an enormous amount of respect."
Meyer joked that once his successor is eventually appointed, he might pursue a second career.
Meyer has signed a two-year contract with WPP to remain as chairman and CEO, and he has agreed to serve in the same posts at Grey Worldwide until a successor is appointed, which is expected to happen six months after the deal is completed, WPP said. At that point, the 77-year-old Meyer will be offered a seat on WPP's board. The London-based holding company said other senior Grey management would continue under their current contracts. Meyer is expected to pocket more than $200 million from the deal.
With the addition of Grey Global Group, WPP will challenge Omnicom for the mantle of world's largest marketing services company.
As for the timing, Meyer said he got serious about selling in January (the month he turned 77) because the agency needed to be part of a larger entity in order to be able to provide services that clients are demanding. He demurred when asked what services WPP could help Grey provide, but Meyer said the emerging markets in Asia were also part of his decision to sell Grey because being part of a larger entity would enable the agency to bolster its network there.
Over the weekend, Grey's board approved WPP's $1,005 per share offer. The half-cash, half-stock transaction values Grey at about $1.5 billion. Taking into consideration that Grey had net cash of $172 million, and the proceeds from the exercise of all options, the deal is costing the London-based holding company $1.3 billion.
The transaction, which will keep Grey as an independent WPP operating unit, will likely be completed by the end of the year.
The attractive financial offer, the promise to keep Grey and its operating companies intact, the financial solvency of WPP and the opportunity to continue at the helm for two years were all reasons Meyer gave for choosing WPP.
WPP beat out French rival Havas, and San Francisco private equity firm Hellman & Friedman, partnered with Kohlberg Kravis Roberts in New York.
Grey staffers can expect a year of belt-tightening and focus on productivity: WPP, which said Grey's margins were 5.8 percent in 2003, has set a target of 10.5 percent for 2005 and 11.5 percent in 2006. (By comparison, WPP's 2003 margin was 13 percent and has established targets of 14.5 percent in 2005 and 15 percent in 2006.) WPP said it has already identified $20 million in cost savings.
The combined 2003 revenue of Grey and WPP would have been $8.629 billion, slightly higher than Omnicom, with $8.621 billion.
In addition to bringing in new clients to WPP like Procter & Gamble, 3M, Adobe, Boehringer Ingelheim, JPMorgan Chase, Conagra, Hasbro, Mars and Warner Brothers, the addition of Grey strengthens existing relationships with marketers like BAT, Diageo, gsk, Nokia and Pfizer.
Early Monday, Havas, which recently went through a round of asset and debt restructuring, issued a statement justifying the decision to enter the Grey bidding. But already a representative for French corporate raider Vincent Bollore, who has been amassing a stake in Havas which is now thought to top 10 percent, was telling reporters in Paris: "We can only be satisfied with the failure of an operation we had advised against and that we estimated was financially dangerous for Havas."
WPP is not expected to sell any of Grey's assets, such as MediaCom, which was of particular interest to Havas, which is in need of additional media resources to prop up its Media Planning Group unit.
Payment of WPP's shares will be based on WPP's closing price in London on Sept. 10 of 514 pence and will use a fixed exchange ratio of $1.7982 per each English pound. For the remaining 50 percent of Grey's shares not being bought for cash, WPP will issue 108.734 shares or 21.746 WPP American Depository Receipts. WPP is expected to issue about 82.2 million new ordinary shares, representing 6.5 percent of its enlarged float.
In order for the merger to be completed, the bid needs to be approved by at least two-thirds of the voting power of all Grey shareholders and by a vote of at least two-thirds of investors holding the total number of Grey's outstanding shares. Meyer, Grey's most influential shareholder has agreed to vote all of shares in favor of WPP's bid, representing about 43.5 percent of voting power.
This story updates an item posted on Sept. 13 with comments from Ed Meyer.