The beginning of April 2018 saw an investigation being launched into advertising legend and WPP chief Martin Sorrell over undisclosed alleged “personal misconduct.” Just a few days later, Sorrell stepped down as CEO and now WPP is on the hunt to fill his shoes.
Why WPP is now vulnerable
WPP looks vulnerable at the moment not only due to Sorrell’s departure but also because of its financial performance. WPP posted a 0.9 percent organic growth in 2017 versus 1.9 percent for its peers, and has the weakest outlook this year compared to its competition, Goldman Sachs noted.
Sorrell’s sudden exit also rattled investors with WPP’s share price falling 6.5 percent on the London Stock Exchange on the first day of trading since WPP announced his exit.
Break up or take over
Financial analysts are speculating that WPP could start selling off businesses in the wake of Sorrell’s exit. “Sir Martin could arguably be called the glue that bound much of WPP together. With his departure, we think the chances of significant chunks of the business being sold off have dramatically increased,” analysts from UK-based Liberum Capital Limited stated in a report.
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French-based equity research provider Natixis added: “WPP now looks even more likely to be broken up or taken over.”
Its market research business, mainly Kantar, is believed to be most vulnerable by analysts. Liberum suggested Sorrell was the main supporter of keeping market research providers within WPP. But now that he is gone, firms like Nielsen could emerge as buyers. Kantar “has been a notable drag on organic growth in recent years,” Goldman Sachs analysts reported, noting that it achieved just 0.2 percent growth from 2014-17 compared with 2.6 percent for the rest of WPP.
Meantime, consultancies such as Accenture, which have sought to bolster their marketing services offerings, could show interest in WPP’s creative, media and digital holdings, Natixis reported.
Enter Omnicom
During Omnicom Group’s first quarter earnings call last week, CEO John Wren weighed in on the possibility of acquiring WPP assets should they come up for sale – and spoke about his former competitor Martin Sorrell.
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“In many ways, I have a great deal of respect for Martin,” Wren said, responding to a question from a Morgan Stanley analyst on whether Omnicom would be interested in WPP assets if they came up for sale. He also remarked he had competed against Sorrell for the last 25 years.
When asked if some of WPP’s assets would shake loose, he said he wasn’t “much help when it comes to answering that question directly,” but he did say that the companies predicted to be sold don’t really interest Omnicom.
In terms of Kantar and other names “being bantered about, that’s not a key focus for our acquisition,” he added without mentioning what would be a focus, or if indeed there was one.
