WPP Group Plc, the world’s second largest marketing and advertising company, said it will pay about $1.52 billion for Grey Global Group Inc., a New York-based ad company whose clients include Procter & Gamble Co. and Mars Inc.

WPP agreed to pay about $1,005 a share, half in cash and half in shares, the London-based company said, in a deal that will narrow the gap between WPP and Omnicom Group Inc., the world’s no. 1 ad company by sales. The purchase price is 7% more than Grey’s Friday closing share price of $940.

WPP beat offers from Havas SA and buyout firm Hellman & Friedman LLC.

“It’s a very sensible, logical deal,” said the head of global equities at Dresdner RCM Global Investors, Lucy MacDonald, in an interview. “There are high-quality clients” at Grey, she said. Procter & Gamble, the maker of products including Pantene shampoo and Pringles potato chips, is among them. P &G is also the world’s biggest advertiser.

The bidding for Grey comes amid a recovery in the ad industry. Aegis Group Plc, the world’s biggest independent buyer of ad time, earlier this month raised its forecast for global ad spending, predicting it would grow 5.7% this year, and said the global slump that began in late 2000 is now over.

Ad spending has been boosted this year by the American presidential elections, the Olympic Games in Athens, and the European soccer championships.

The acquisition may make WPP the world’s largest advertising group, although that won’t be clear until the end of the year, said an analyst at Numis Securities, Richard Hitchcock. Numis rates the stock “buy.”

Grey will boost WPP’s revenue by about 20%, WPP said, and combined revenue last year would have been 4.9 billion pounds ($8.8 billion). Revenue at Omnicom was $8.6 billion.

WPP, which announced Sunday it had won the bidding for Grey, beat out France’s Havas and Hellman & Friedman of San Francisco, which teamed up with Kohlberg Kravis Roberts & Co.

“It wasn’t much of an auction,” WPP’s chief executive, Martin Sorrell, 59, said in an interview. “I didn’t detect that Havas was there or thereabouts. I think the more significant threat was from KKR and Hellman.”

The advertising industry has consolidated over the past five years as WPP and Paris-based Publicis Groupe SA bought global ad agencies. WPP beat Publicis in a bid for Cordiant Communications Group Plc last year. Publicis bought BCom3, the parent of agency Leo Burnett, in 2002.

WPP fell 6 pence, or 1.2%, to 508 pence in London.

WPP will pay $1,005 in cash per share for half of Grey’s shares. For the remaining 50% of Grey’s shares it will offer 108.734 WPP shares or 21.746 American depositary shares per share.

Grey’s shares rose as much as $45, or 4.79%, and traded at $985 in Nasdaq Stock Market composite trading. The shares have climbed 43% this year, compared with a 5.4% decline for the Nasdaq Composite Index.

WPP said it will issue about 82.2 million new shares, representing 6.5% of the enlarged share capital of the company. It will finance the cash portion of the transaction with existing facilities.

Havas said yesterday it didn’t raise its initial offer for Grey. Shares of Havas jumped 38 cents, or 9.8%, to 4.27 euros in Paris.

When asked on a call with analysts whether WPP was interested in acquiring Havas, which some investors now see as a target, Mr. Sorrell said, “We have to focus on our own issues.” WPP has twice approached Havas to buy half of its Ad Planning Group, Mr. Sorrell said.

WPP expects the merger to increase earnings from next year, the company said. WPP expects to improve operating margins at Grey from an expected 8.5% this year to 10.5% in 2005, Mr. Sorrell said. It is aiming for operating margins across WPP of 14% next year.

The company will need to take care it doesn’t endanger the client list by bringing “a more margin-conscious world to Grey,” because that may lead to a perception of lower service, said an analyst at Sanford Bernstein in New York, Michael Nathanson, in a note to investors. He rates WPP shares “outperform.”

“I didn’t find any client who had any large concern of the prospect of WPP joining,” Grey’s chairman and chief executive, Edward Meyer, said in a call with analysts. Mr. Meyer, who controls up to 50% of voting power in the company, will stay as chief executive of Grey until at least December 2006, WPP said.

Grey will be WPP’s fourth large purchase in the past four years. Last year’s 265-million-pound acquisition of Cordiant Communications helped WPP become no. 2 by sales, surpassing Interpublic Group of Cos.

The price WPP paid “is at the upper end of expectations but what looks attractive is the speed of margin improvement that they are expecting from Grey,” said Mr. Hitchcock at Numis.

Merrill Lynch & Co. and Morgan Stanley advised WPP on the transaction, WPP said.