Exit strat­egy

Sir Mar­tin Sor­rell’s de­par­ture could see in­ter­ested par­ties carve WPP into many parts

The Daily Telegraph - Business - - Front Page -

Barely 24 hours since Sir Mar­tin Sor­rell abruptly left the me­dia em­pire he built from scratch and bets are on as to which of the busi­nesses he ac­quired will go first. Bankers and pri­vate eq­uity gi­ants are set to start cir­cling WPP’s mar­ket re­search, pub­lic re­la­tions and health di­vi­sions as Sir Mar­tin’s exit fi­nally leaves the world’s largest ad­ver­tis­ing group open to a break-up.

Se­nior in­dus­try fig­ures said a split is now in­evitable as WPP be­gins life with­out its 73-year-old founder, who trans­formed a tiny man­u­fac­turer of shop­ping bas­kets into a £20bn me­dia group made up of 400 sep­a­rate com­pa­nies in­clud­ing Ogilvy & Mather.

“The com­pany is no longer grow­ing, so how do you re­boot share­holder value and get in­vestors back on side again? All you can re­ally do is crys­tallise value by dis­pos­ing of as­sets,” said Alex DeG­roote, a me­dia an­a­lyst at Cenkos Se­cu­ri­ties. “In terms of prob­a­bil­ity I’d say it’s 100pc, the ques­tion is the time­line.”

The firm’s mar­ket re­search as­sets, such as Lon­don-based Kan­tar, are deemed as the most saleable in the short-term, with City an­a­lysts ex­pect­ing a Kan­tar sale to raise up to £3.5bn. DeG­roote said its ros­ter of PR com­pa­nies such as Buchanan and Fins­bury could also be sold, but he es­ti­mates that it would only fetch up to £1bn in to­tal, while pri­vate eq­uity gi­ants are likely to be eye­ing up WPP’s health firms such as Sudler & Hen­nessey.

“What ev­ery­one wants in me­dia at the mo­ment is data, peo­ple are ab­so­lutely ob­sessed. Health­care lends it­self to that,” said DeG­roote. “PR on the other hand has less data, it’s not grow­ing, it’s less of an in­ter­na­tional story. PR tends to tar­get quite a lo­calised mar­ket, re­search tends to work across borders.”

Be Heard Group founder Peter Scott, who started his ca­reer at Ogilvy & Mather, said the era of mam­moth hold­ing com­pa­nies run­ning the in­dus­try is com­ing to its end, and Sir Mar­tin’s exit is syn­ony­mous with that.

“If you go back one step and you look at the way these hold­ing com­pa­nies have evolved, you ask your­self the ques­tion – for whose ben­e­fit did they grow? Was it for clients, staff or share­hold­ers?” he said. “The growth of hold­ing com­pa­nies [such as WPP, Publi­cis and Om­ni­com] re­ally came about from the Eight­ies when me­dia buy­ing was taken away from the agen­cies. They saw it as an op­por­tu­nity to con­sol­i­date all their me­dia com­pa­nies into large power points. That era is now com­ing to an end. If you take the com­pet­ing groups in [WPP] such as Grey and Ogilvy, they’re all fight­ing each other.”

That’s also likely to have been the case in WPP’s board­room in re­cent weeks. City an­a­lysts be­lieve there was a dis­agree­ment be­tween Sir Mar­tin and the rest of the board over strat­egy while sources told The Tele­graph he left af­ter grow­ing “fed up and p ***** d off ” with the board’s han­dling of an in­ter­nal probe into al­leged mis­con­duct, of which WPP has re­fused to dis­close any de­tails. Sir Mar­tin, who has de­nied wrong­do­ing, told staff the ad giant “will al­ways be my baby” af­ter he re­tired on Satur­day.

“This story is a tragedy be­cause you’re de­con­struct­ing what Sor­rell has con­structed,” said DeG­roote. “The com­pany will now be run in more of a share­holder way. What I mean by that is there will po­ten­tially be some spe­cial div­i­dends off the back of some dis­pos­als. [It will be­come] a smaller, leaner group with a bit more fo­cus and a lot of M&A ac­tiv­ity.”

For the in­vestors who have been ques­tion­ing Sir Mar­tin’s ad­ver­tis­ing em­pire in re­cent months, that more nim­ble model is ex­actly what they want. WPP’s shares have steadily fallen in the last year as it has strug­gled to grow amid drops in ad­ver­tis­ing spend, the growth of so­cial me­dia plat­forms and fresh com­pe­ti­tion from con­sul­tants such as Ac­cen­ture. Its fore­cast of no growth for 2018 de­spite this year’s Win­ter Olympics and foot­ball World Cup, which should boost sales, dis­ap­pointed share­hold­ers fur­ther.

“They’ve had sub­stan­tial in­vestor pres­sure. Whereas Mar­tin was say­ing it’s all very dif­fi­cult [in WPP’s lat­est re­sults], Publi­cis came out and said here’s a three year plan, here’s a so­lu­tion,” noted one se­nior in­dus­try fig­ure. “The old story that scale and vol­ume is ev­ery­thing is chang­ing – clients no longer see that as a ben­e­fit.”

But while a change in strat­egy is in­evitable, cru­cial ques­tions re­main unan­swered which could dis­tract the busi­ness from mov­ing for­ward. Sir Vince Ca­ble, the Lib­eral Demo­crat leader, is among those pil­ing pres­sure onto WPP to dis­close the de­tails of the al­le­ga­tions Sir Mar­tin has been ac­cused of, with many an­gry that the claims are still shrouded in se­crecy.

Then there is the tricky is­sue of find­ing a re­place­ment for one of the most fa­mous busi­ness­men in the world just as the com­pany tries re­or­gan­ise it­self. Mark Read, the boss of WPP Dig­i­tal and dig­i­tal mar­ket­ing agency Wun­der­man, has just been made joint chief op­er­at­ing of­fi­cer and is seen as a likely in­ter­nal can­di­date. But some have sug­gested a big ex­ter­nal name, per­haps Jeremy Dar­roch at Sky or Jerry Buhlmann at Dentsu, might be favoured by the City. Or even no­body at all.

“Peo­ple keep go­ing on about suc­ces­sors but he’s not your typ­i­cal man to re­place be­cause he sits at the same ta­ble as [Don­ald] Trump and CEOs like Bill Gates. Who are they go­ing to get with the same pro­file? No­body,” added DeG­roote. “[Roberto] Quarta be­ing made ex­ec­u­tive chair­man in­di­cates there won’t be a re­place­ment, no real suc­ces­sion plan and no­body they’ve got their eye on. Quarta’s back­ground is largely in pri­vate eq­uity, he’s very well versed in re­struc­tur­ing.”

Sir Mar­tin Sor­rell: WPP’s 73-year-old founder re­signed on Satur­day

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