WPP set for $1.3bn Grey bid as advertising revenues rebound

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WPP, the advertising group, said that global advertising expenditure this year should equal the boom year of 2000, but the company warned that growth would slow next year.

WPP, the advertising group, said that global advertising expenditure this year should equal the boom year of 2000, but the company warned that growth would slow next year.

Presenting interim results, Sir Martin Sorrell put the case for acquiring the Grey Global agency for the first time to the City. Analysts said they came away believing that the deal - worth between $1.3bn (£714m) and $1.5bn - now seemed more likely than not. Industry sources reckon that WPP will meet at least half the purchase price with the issue of new equity.

Sir Martin said: "We are continuing to noodle with it," adding that WPP is doing due diligence and has met with Grey's management.

He acknowledged that the acquisition of Grey, based in the US, would not change the shape of WPP. But he said it was a "good company" which had a big base outside the US, with attractive businesses and clients. Grey's major client is Procter & Gamble, the world's biggest advertiser, which does not use WPP to any significant extent.

Goldman Sachs, the investment bank, is auctioning Grey, which is listed in the US. Sir Martin said that although mid-August was the original target for agreeing a sale, "the process has slowed", with late August or early September now the likely decision time. He said: "At this stage it is not a beautiful swan or an ugly duckling. It is too early in the process. But we are confident that we are doing the right thing in looking at it."

Few trade buyers appear to be in a position to challenge WPP for Grey, City sources said. Havas, the French media group, appeared to be the only serious trade contender, while the US private equity group Hellman & Friedman was possibly the leading financial buyer.

WPP's half-year results showed pre-tax profit up 15 per cent to £176.3m. Like-for-like revenues were up 2 per cent or 6 per cent higher on an absolute basis to £2.03bn. It was the first time the company had passed the £2bn mark for the interim period. The figures showed revenue growth accelerating through the period, and July, the first month of the second half, was up 6 per cent, on a like-for-like basis. Analysts said the second half was expected to show 4 per cent underlying growth at WPP.

Sir Martin said: "Most pundits forecast industry growth rates of 3-4 per cent this year. Levels of activity in 2004 will match, or surpass, the levels of activity seen in the internet-driven boom year of 2000."

In the UK though, the pick-up had lagged the US and Asia. He warned that he expected the rate of growth for global advertising expenditure would slow next year - to between 2 and 3 per cent. Sir Martin said that three events this year, Euro 2004, the Olympic Games and the US presidential election would add 1 to 2 per cent to global advertising expenditure.

That cautious outlook statement, and the risks associated with acquiring Grey, were blamed for a fall in WPP shares yesterday, which closed down 6.5p at 488p.

Sir Martin said he was "concerned" about the US economy after the presidential election. Although he made this point before, analysts said the market had hoped his view would have turned more positive by now.

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