Grey Global Group Inc.

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Grey Global Group Inc.

777 Third Avenue
New York, New York 10017
U.S.A.
Telephone: (212) 546-2000
Fax: (212) 546-1495
Web site: http://www.greyglobalgroup.com

Public Company
Incorporated: 1917 as Grey Studios
Employees: 10,500
Sales: $1.3 billion (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: GREY
NAIC: 541810 Advertising Agencies

Grey Global Group Inc., formerly Grey Advertising Inc., is one of the world's largest advertising agencies with offices in 83 countries around the globe. The company provides integrated communications services to a wide variety of clients whose products include some of the most well-known American brand names, and Grey prides itself on its longstanding relationships with these clients. From its base in New York's fashion industry, Grey has grown to become an advertiser of foods, cars, electronics, drugs, and other products. The WPP Group PLC made a $1.4 billion play for Grey in 2004.

Early History

Grey Advertising got its start on August 1, 1917, when 18-year-old Larry Valenstein founded Grey Studios. Too young to be sent overseas to fight in World War I, and having left college, Valenstein borrowed $100 from his mother and leased an office at 309 Fifth Avenue in New York. The fledgling entrepreneur set up shop as a direct mailer. Valenstein had worked previously as an errand boy at another direct mail firm, and he felt that he had learned enough at that job to strike out on his own. Valenstein's new business got its name from the color of his office's walls: slate gray.

Every six months, Grey Studios produced direct mail folders in which New York's furriers advertised their wares. As the business grew, Valenstein added new employees, taking on an art director and an assistant. Four years after its founding, Grey Studios moved to its second set of offices. Located at 41 East 29th Street, the company's two tenement rooms also served as a home for its art director. Needing extra help, Valenstein hired 17-year-old Arthur Fatt as an office boy in 1921.

It was Fatt, with a flair for salesmanship, who suggested several years later that the company replace its biannual mailers with a magazine published nine times a year and designed to showcase the products of the company's clients. After Fatt presented his boss with the title Furs & Fashions and a dummy issue, Valenstein was persuaded, and Grey Studios launched the publication.

Furs & Fashions soon became a success, and with the capital generated from this publication, Grey Studios was able to move from direct mailing to advertising, a logical outgrowth of the direct mail business, and a long-sought goal of the company. In 1925, Valenstein and Fatt renamed the company Grey Advertising.

Grey placed its first national advertisement in the August 1926 issue of the Ladies Home Journal. Drawing on the company's longstanding relationship with the fur industry, it featured a spot for Mendoza Fur Dyeing Works, Inc., of New York, for which the agency was, incidentally, never paid.

In 1930, Grey Advertising moved to its third New York location, on East 30th Street, just off of Fifth Avenue. In the 1930s, the company built on its historical affiliation with the New York garment industry, of which the fur industry was a part, to develop a reputation as an advertiser for retail stores and their merchandise. As a Seventh Avenue-area firm, based in the world of fashion, Grey Advertising became known as a soft goods specialist, dedicated to promoting manufacturers who retailed their wares in department stores. By 1938, the company was earning $250,000 a year in billings.

Grey's leaders concentrated on attracting high-quality creative talent throughout the 1940s, despite the fact that the entry of the United States into World War II made recruiting workers in a wartime economy difficult. Grey Advertising continued to turn a profit during the war years. As the American economy boomed in the aftermath of the war, the agency's sales reached $1 million a year.

Despite this success, Grey's leaders realized that their competitors in the New York advertising industry were growing at a faster rate than they were, mainly as a result of their work for companies that manufactured packaged goods. These products, sold in grocery stores or drug stores, as opposed to department stores, had low prices, were sold in large quantities, and brought unparalleled prestige and professionalism to an advertising agency. In 1946, Grey acquired its first packaged goods client, the Mennen Company.

By the end of the 1940s, Grey's size and profits had grown so large that its two leaders instituted an employee stock-ownership plan, so that their coworkers could also participate in the company's good fortune. In 1955, Grey notched another important packaged goods client, Block Drug.

In the following year, Valenstein moved up to chairman of the agency, and Fatt became president of Grey. Shortly thereafter, the company scored its biggest coup in the packaged goods field. In 1956 Grey added manufacturing giant Procter & Gamble to its client list, after the company's previous ad agency had gone out of business and many of its employees had moved over to Grey.

Part of the importance of packaged goods clients lay in their heavy use of television advertising, and as the medium grew in importance throughout the 1950s, Grey increased its involvement with television advertising. As the manufacturers who advertised on television saw their businesses grow, so did the advertising agencies who worked for them. In addition, Grey began to hone its prowess at market research during this time by focusing on the broader picture of market strategy, as opposed to narrow campaigns for a single product.

International Expansion in the Late 1950s

In 1959 Grey opened its first international office, in Montreal. In that year, the agency's billings reached 44.61 million. Two years later, Valenstein and Fatt gave up their day-to-day duties at the agency they had created and became chairmen of Grey's executive committee. Herbert Strauss, an agency employee since 1939, took over as president.

With Strauss at the helm, Grey began a dramatic geographical expansion. In 1962, the company opened an office in Los Angeles called Grey-Western Division. In addition, the agency looked east, purchasing part of an English agency called Charles Hobson.

This was followed, in 1963, by expansion to Japan. Also in that year, Grey became one of the first advertising agencies to branch out into public relations by establishing Grey Public Relations, the company's first subsidiary. By the next year, Grey's billings had topped $100 million, more than doubling in just five years. In addition, the company had moved into Belgium, France, Germany, and Italy. Toronto, the company's second Canadian office, would be added in the next year. Overseas offices were responsible primarily for handling the international needs of Grey's American clients.

By 1965 Grey employed nearly 900 people, who were newly installed in seven floors of a new office building on Third Avenue in Manhattan. Despite its large size, the agency stressed teamwork and balance among its different departments, thereby engendering creative problem solving. In August 1965 Grey became the fourth national advertising agency to offer stock to the public, selling 290,000 shares in the company at $19.50 a piece. Selecting its clients carefully to assure high-quality management and strong growth potential in the products it advertised, Grey included Bristol-Meyers, Revlon, and Greyhound, along with Procter & Gamble, on its roster of accounts. To help service these accounts, the agency opened offices in Australia, Spain, and Venezuela.

By 1967, its 50th year in business, Grey Advertising boasted $221 million in billings. In the following year, the company opened offices in San Francisco and Austria. Two years later, Edward H. Meyer took over the post of chairman of the board, and the company began to supplement its global growth with expansion through the acquisition of subsidiaries. Meyer sought "to expand the geographic range of the business and the communications range of the business," as he told an interviewer from Advertising Age. In keeping with this policy, the company entered the business of healthcare communications in 1970, inaugurating Grey Medical, in addition to adding a unit called Crescendo Productions.

This was followed by the acquisition of Statter, Inc., in 1971. Also in that year, the company opened offices in The Netherlands and Argentina. After its purchase of North Advertising, Inc., the eighth largest advertising agency in Chicago, the company inaugurated Grey-North. A second midwestern office also was founded that year, when the company opened Grey-Twin Cities in Minneapolis-St. Paul.

Company Perspectives:

In these uncertain times, we have stayed true to the singular purpose that has always guided us; to build the value of our clients' brands. We focus relentlessly on our clients, judging our performance by their growth and our prospects by the faith they show in us. This enduring strength is rooted in our souls and permeates our vision and our work. It's what makes our client relationships long and strong and sets us apart from other companies in our industry.

Gains and Losses in the 1970s

In 1972, Grey won the Goodrich Tire Company's $6 million a year passenger car tire account with a creative proposal focusing on the new technology involved in radial tires. This capped a year-long stint in which the company had won approximately $63 million in new business. Grey had landed a $16 million small car account from the Ford Motor Company in August 1971, and followed this up by acquiring business from the Singer Company, Calgon Corporation, Carter-Wallace, and General Electric. At the same time, however, the company lost $13 million of billings, from clients including Ballantine beer, the Howard Johnson Company, and a Procter & Gamble detergent. Building on this stint of new business, Grey opened foreign offices in South Africa and Brazil in 1973, and also established its Grey Entertainment & Media subsidiary to handle communications and entertainment advertising.

In 1974, Grey won a $16.5 million Navy recruiting account from the U.S. government, which it subsequently lost in the next year. The company filed a formal protest over the loss of the business with the General Accounting Office and threatened to sue, claiming it had been unfairly stripped of the account. Grey's attempt to press a legal claim to the Navy work came to an end in September 1977, when a court dismissed its claim. Also during this time, Grey lost its Ford Motor account.

In the mid-1970s, Grey added offices in Sweden, Norway, and New Zealand. The company also invested in a consumer research firm, Market Horizons, and Lexington Broadcast Services, a television syndication service. Grey's overseas business flourished, and in 1976, the agency formed a joint venture with a Swiss advertising firm, creating Steinman & Grey. This fell apart, however, just one year later. A further setback occurred in 1977, when the company lost a client of 20 years, Greyhound.

In the following year, however, the company rallied back, winning a prestigious automotive account, the American Motors Corporation. In the late 1970s, Grey's international expansion continued as the company added foreign affiliates in Chile, Hong Kong, and Uruguay. Moreover, the company branched out to the Hispanic market in the United States, acquiring Font & Vaamonde, an agency that specialized in this work.

The 1980s saw Grey's expansion through acquisition continue apace. In 1980 the company's subsidiary Grey/2 bought another New York firm, Conahay & Lyon, for $1.4 million, thus forming a joint agency. In addition, the company returned to its roots when it opened Grey Direct, a direct marketing concern. This holding was augmented in the following two years by the purchase of the Beaumont-Bennett Group, a sales promotion and co-op advertiser, and Rada Recruitment Communications, which prepared job recruitment materials. In 1983, the company formed Grey Strategic Marketing, a subsidiary that offered long-term planning services. Foreign offices added in the early 1980s included Denmark, a second stab at the Swiss market, Singapore, Peru, and Mexico. In addition, the company formed Grey Reynolds Smith, a wholly owned subsidiary in Canada.

A New Business Plan in 1983

In late 1983, Grey inaugurated a new five-year business plan and set out to remake its corporate image. The company took steps to elevate the importance of creative work within its corporate culture, hiring new people in this area, and promoting creative executives from within the company. In an effort to increase the respect and prestige afforded creative talent at the agency, Grey installed its employees in expensive new offices and inaugurated a worldwide prize for the best creative work. With these measures, the agency hoped to shake its image as a traditional, hidebound shop, lacking in new ideas.

These efforts started to show fruit as the agency notched a number of big new clients in the mid-1980s, including Mitsubishi Motors of America, Red Lobster Restaurants, and Miss Clairol. In early 1986, the agency took steps to insure that this success would not make Grey the object of a hostile takeover, despite the fact that the company's longstanding employee stock ownership plan meant that 55 percent of the company was held by Grey employees. To further strengthen its defenses, the agency rearranged the structure of its stock offerings. During this time, the agency purchased Gross Townsend Frank Hoffman, a medical advertising firm, just one month before it sold off Grey Medical, its old unit. By the end of the year, Grey billings had topped $2 billion.

Grey's steady acquisition of properties that complemented its central advertising unit helped to make the company one of the world's few fully integrated marketers by the mid-1980s. In this way, the company was able to lessen the impact of clients' gradual shift away from traditional advertising to more creative forms of promotion. With its various units, Grey had the capability to handle all aspects of a client's marketing needs, including advertising, promotions, direct mail, and public relations. For accounts like the hospital chain Humana, Grey was able to coordinate a unified, interrelated campaign, which used mailings to follow up on television advertising, reinforcing one message through many media. For its client Kool-Aid, the agency adopted a similar approach, tying television commercials to ads in Sunday newspaper comic sections, which in turn keyed in to in-store displays with coupons for stuffed animals, sunglasses, and skateboards. In addition, the company arranged promotional events, with appearances by Kool-Aid's mascot, a smiling pitcher.

In the late 1980s, Grey shed some of the holdings it had acquired during its period of rapid expansion throughout the late 1970s and 1980s. The company transferred its Chicago shop to a Swiss firm, and in November 1988, Grey sold for $38 million its LBS Communications (formerly Lexington Broadcast Service), a television syndicate whose high cash flow had made Grey ripe for takeover.

Key Dates:

1917:: Grey Studios is founded by Larry Valenstein.
1925:: The company is renamed Grey Advertising Inc.
1956:: Grey begins its relationship with Procter & Gamble.
1959:: An international office is opened in Montreal.
1965:: Grey becomes the fourth national advertising agency to go public.
1976:: Grey forms a joint venture with a Swiss advertising firm creating Steinman and Grey.
1980:: Conahay & Lyon is purchased by Grey-2, forming a joint agency.
1983:: The company forms Grey Strategic Marketing.
2000:: Grey Advertising creates Grey Global Group as a holding company; Grey Worldwide becomes its advertising unit.
2004:: The WPP Group offers nearly $1.4 billion for Grey.

Despite these divestments, the company continued to grow. The agency got into the audiovisual corporate communications business in 1988, with its purchase of Gindick Productions. Although Grey refrained from merging with another ad agency of its size during the period of industry consolidation in the late 1980s, Grey made "an average of 20 to 25 acquisitions a year," Chairman Meyer told Advertising Age. "Grey's attitude is to keep its culture and character consistent and make small mergers one at a time, with specific companies for specific reasons in specific countries in specific communications skills," he elaborated.

Responding to Global Changes in the Late 1980s–90s

In 1989 Grey turned its attention to coming changes in the world market and took steps to prepare for European economic union in 1992. The company formed a European management board in April to coordinate its agency network, as the continent became more and more a single market. In addition to this regional strength, Grey also had built up a strong network in Asia, with agencies in Japan, Taiwan, the Philippines, Hong Kong, Australia, New Zealand, Malaysia, Thailand, Singapore, and India.

As its business became more international, Grey looked to strengthen its other communications enterprises such as public relations, direct-response mailings, and promotional services—and expanded their scope to an international level, in keeping with its advertising activities. By 1991, the company had 188 offices in 40 countries.

Despite the recession that hampered the American economy in the early 1990s, Grey continued to turn a profit. In 1991, the company reported earnings of $528 million. These were lower than expected as a result of the expensive shuttering of Levine, Huntley, Vick & Beaver, an agency subsidiary based in New York that had fallen apart after the loss of its primary account, Subaru cars, and the departure of its management.

Although the company was known for solid strategic planning, Grey's reputation on Madison Avenue suffered for lack of innovation during the mid-1990s. A new creative director brought change to the company, and they began to win midsize accounts. Grey won $160 million in new business in 1994.

Grey grew in cyberspace as well. In 1999, the company formed MediaCom Digital, a strategic developer that connected all advertising services. Later that year, Grey Advertising purchased media buying agency Beyond Interactive in order to increase its online media business. The purchase was meant to act as a counterpart to other Grey businesses such as Grey Direct and media.com. Beyond Interactive opened up offices in China and Mexico the following year.

Changes in the New Millennium

In order to manage the company's subsidiaries effectively, Grey Advertising Inc. set up a holding company in 2000 under the Grey Global Group name. Its advertising division adopted the Grey Worldwide corporate moniker. The company had not been through a reorganization since 1970—the year Edward Meyer was elected CEO. Grey was not alone in its restructuring. The creation of Grey Global came at a time when advertising agencies across the globe were becoming increasingly diversified.

In the early years of the new millennium, Grey continued to grow on many levels. In an effort to increase Grey's email services worldwide, Grey Direct added Englishtown.com to the clientele of Grey eMMetrics, its email marketing division, in 2001. With 60 million email messages sent each month, Englishtown.com became its highest volume client. This new client had the ability to track the success of each email initiative and to analyze returns to determine the most efficient advertising strategies.

Procter & Gamble, which accounted for 10 percent of Grey's business, kept Grey Global Group as one of two agencies responsible for the majority of its global advertising accounts in 2002. With this decision, Grey gained additional international business for Zest soap and Torengos snack products. At the same time, however, Grey suffered blows to its reputation when three former executives were indicted by the Justice Department for conspiracy to control bids and allocate contracts.

Despite global advertising growth as a result of the Summer Olympics, Grey's future as the last independent agency of its kind came into question in 2004. The company hired Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. to discuss the possibility of a sale. Grey's revenue was $1.3 billion in 2003, but labor costs and real estate expenditures took their toll on profit margins. Grey had become an attractive takeover target, especially with clients such as Procter & Gamble, GlaxoSmith-Kline PLC, Nokia Corp., and BellSouth Corp., and industry analysts began to speculate that Edward Meyer, Grey's long-time chairman and CEO, might relinquish control after 34 years. Sure enough, the United Kingdom's WPP Group PLC—the second largest advertising firm in the world—offered $1.4 billion for Grey in September 2004. With a sale on its horizon, Grey Global looked to be on track for changes in the future.

Principal Operating Units

Grey Healthcare; GCI; G2; Grey Interactive; Grey Direct; Market Data Solutions; Grey Worldwide; APCO; MediaCom; Alliance; J. Brown Agency; Gwhiz; Wing Latino.