Ad empire vulnerable to break-up
• Underperforming data unit an obvious candidate for disposal, says analyst, after WPP loses the founder who held company together
Martin Sorrell’s abrupt exit from WPP leaves the advertising empire in search of a new CEO 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 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.
Its share price fell as much as 6.6% on Monday with WPP’s future strategy unclear.
Sorrell, who turned a 1985 investment in a wire shopping basket manufacturer into a behemoth of more than 200,000 employees, was long seen as irreplaceable. He was seen as the man pulling the strings to connect more than 400 agencies, which create marketing campaigns for clients such as Coca-Cola and Procter & Gamble. 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 by phone. “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 £3.5bn to reduce debt or return cash to shareholders, Liberum analyst Ian Whittaker wrote in a note.
“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 $100bn, 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 stop-gap plan of having two interim operating chiefs and an executive chairman leading the group.
The next CEO will be faced with reviewing WPP’s strategy as it battles declining advertising spending, competition for digital work from consultants and the threat of web giants cutting out agency middlemen.
“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 a note. Sorrell quit WPP less than two weeks after the leak of a probe being conducted by the com pany into allegations of personal misconduct and misuse of company assets, and just days before the board was set to publish the findings. He has denied the allegations and WPP said on Saturday that the investigation was complete, without revealing details.
While a new CEO could more rapidly and radically restructure WPP, management could become distracted during major reviews announced in 2018 for ad contracts, Barclays analysts led by Julien Roch wrote in an e-mailed note. European media shares usually underperform around management changes, the analysts said.
WPP had fallen 6.1% to £11.16 by mid-morning in London on Monday, giving the company a market value of £14.1bn.
The WPP chief was an elder statesman of the ad industry, earning a knighthood from Queen Elizabeth. He was among Britain’s longest-serving CEOs in recent memory, appearing regularly in public to discuss issues from Brexit to Donald Trump’s trade wars to the rise of Facebook and Google. He courted controversy with his pugnacious manner and inflated pay package, particularly at a time when WPP’s revenue stalled.
In a statement to WPP employees, Sorrell said that the current disruption was putting “too much unnecessary pressure on the business” and that in the interest of the company and clients it was “best for me to step aside”.