Sir Martin Sorrell's WPP yesterday won the bid battle for Grey Global, putting it neck and neck with Omnicom of the US for the title of the world's largest advertising agency.
WPP won the auction with a cash and shares bid worth more than £750m, beating offers from the French advertising group Havas and the San Francisco-based private equity firm Hellman & Friedman.
The purchase of Grey Global by WPP creates an advertising, marketing and public relations group with revenues of £4.8bn - putting it on a par with Omnicom, which had net sales in 2003 of $8.6bn (£4.78bn).
WPP will make a formal Stock Exchange announcement this morning setting out the terms of the deal, following a statement yesterday confirming that it had reached agreement on a recommended offer.
Sir Martin's company is understood to have paid for Grey Global with an equal mix of shares and cash, meaning the precise value of the takeover will depend on the price that WPP shares open at today. WPP shares closed up 5p at 514p last Friday, valuing it at £6bn while Grey Global shares closed at $940, giving it a market capitalisation of $1.3bn (£722m).
The purchase of Grey Global will bring with it the account of the US food and consumer products giant Proctor & Gamble, the biggest advertiser in the world. WPP already handles the advertising of the rival consumer products group Unilever, presenting a potential conflict of interest. WPP hopes this can be overcome by maintaining strict Chinese walls between the two accounts and ensuring they are handled by different agencies within the group. WPP already owns J Walter Thompson, Ogilvy & Mather and Young & Rubicam.
The New York-based Grey Global also boasts the drinks group Diageo and the pharmaceuticals giant GlaxoSmithKline among its clients. It was the only major advertising agency which was not part of a bigger group. Its chairman and controlling shareholder, Ed Meyer, will make about £145m from his stake in Grey Global. He owns 20 per cent of the ordinary shares but 70 per cent of the voting stock.
Mr Meyer put Grey Global up for sale in July and appointed Goldman Sachs and JP Morgan Chase to handle the auction. WPP was advised by Merrill Lynch.
WPP had revenues last year of £4.1bn while Grey Global had revenues of £720m, meaning that it will account for about 15 per cent of the enlarged group. Sir Martin's capture of Grey Global follows his success last year in beating Publicis for control of Cordiant Communications.
In addition to its advertising agencies, WPP also owns the public relations consultancies Hill & Knowlton, Burson Marsteller and Finsbury, which specialises in financial PR.