Sorrell departure may herald empire breakup
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. #$$ ) " - $ " ( #$$ $ ! ' ' ( ) * %' + , %&