Sor­rell de­par­ture may her­ald em­pire breakup

Financial Chronicle - - COMPANIES - JOE MAYES

MAR­TIN Sor­rell’s abrupt exit from WPP leaves the ad­ver­tis­ing em­pire in search of a new chief ex­ec­u­tive of­fi­cer for the first time and vul­ner­a­ble to a break-up, as the sprawl­ing net­work of agen­cies faces its big­gest chal­lenges since the global fi­nan­cial cri­sis.

Sor­rell’s de­par­ture on late Satur­day from the world’s largest ad com­pany puts WPP’s omis­sions in groom­ing a suc­ces­sor to its 73-year-old founder into sharp fo­cus, even with share­hold­ers long flag­ging the is­sue. It also raises the prospect of a split, as WPP loses the man hold­ing the em­pire to­gether.

The shares fell as much as 6.6 per cent with WPP’s fu­ture strat­egy now un­clear. Sor­rell, who turned a 1985 in­vest­ment in a wire shop­ping bas­ket man­u­fac­turer into to­day’s be­he­moth of more than 200,000 em­ploy­ees, was long seen as ir­re­place­able—the man pulling the strings to con­nect its more than 400 agen­cies who cre­ate mar­ket­ing cam­paigns for clients such as Coca-Cola Co and Proc­ter & Gam­ble Co. Now, the group faces pitches from in­vest­ment bankers push­ing as­set sales or a more dra­matic dis­so­lu­tion.

“The cat­a­clysmic thing has hap­pened,” Alex DeG­roote, a me­dia an­a­lyst at Cenkos Se­cu­ri­ties, said. “Peo­ple are scared there’s an­other profit warn­ing com­ing. They are in a neg­a­tive tail­spin.”

WPP’s data man­age­ment unit Kan­tar, whose rev­enue growth has “con­sis­tently un­der­per­formed” the group av­er­age, is the most ob­vi­ous can­di­date for dis­posal and could raise 3.5 bil­lion pounds ($5 bil­lion) to re­duce debt or re­turn cash to share­hold­ers, Liberum an­a­lyst Ian Whit­taker wrote in a note on Mon­day.

“The chances of sig­nif­i­cant chunks of the busi­ness be­ing sold off have dra­mat­i­cally in­creased,” Whit­taker said. “Sir Mar­tin could ar­guably be called the glue that bound much of WPP to­gether.”

Com­pa­nies like Ac­cen­ture, a debt-free con­sul­tant five times WPP’s mar­ket value at about $100 bil­lion, have been seen as po­ten­tial suit­ors for WPP units, and have re­cently been buy­ing up ad agen­cies.

WPP’s board is now fo­cused on find­ing a long-term so­lu­tion to re­place a stop­gap plan of hav­ing two in­terim op­er­at­ing chiefs and an ex­ec­u­tive chair­man.

The next CEO will be faced with re­view­ing WPP’s strat­egy as it bat­tles de­clin­ing ad spend­ing, com­pe­ti­tion for dig­i­tal work from con­sul­tants and the threat of web gi­ants cut­ting out agency mid­dle men.

“Any ex­ec­u­tive fill­ing Sor­rell’s shoes needs to or­ches­trate as­sets across the hold­ing com­pany and do­ing so is a chal­lenge in a frag­mented fed­er­a­tion of busi­nesses such as those which ex­ist within WPP,” Brian Wieser, a me­dia an­a­lyst at Piv­otal Re­search, said in an emailed note.

Sor­rell quit WPP less than two weeks af­ter the leak of a probe be­ing con­ducted by the com­pany into al­le­ga­tions of per­sonal mis­con­duct and mis­use of com­pany as­sets, and just days be­fore the board was set to pub­lish the find­ings.

While a new CEO could more rapidly and rad­i­cally re­struc­ture WPP, man­age­ment could also be­come distracted dur­ing ma­jor re­views an­nounced so far this year for ad con­tracts, Bar­clays an­a­lysts led by Julien Roch wrote in an emailed note. Euro­pean me­dia shares usu­ally un­der­per­form around man­age­ment changes, the an­a­lysts said. #$$ ) " - $ " ( #$$ $ ! ' ' ( ) * %' + , %&

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