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WPP : Advertising World Reels in Wake of Tumult at Giant -- WSJ

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04/17/2018 | 08:48am CEST

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 17, 2018).

By Lara O'Reilly and Alexandra Bruell 

The exit of Martin Sorrell as chief executive of WPP PLC has the advertising sector reeling, as questions loom about the future strategy of the world's largest advertising company without the man who shaped the course of the industry over the past 33 years.

The 73-year-old executive abruptly stepped down on Saturday, amid a board probe into an allegation of personal misconduct. Mr. Sorrell said earlier this month that he denied the allegation "unreservedly."

His departure is stoking existing anxieties about the health of WPP's business, after the company recently posted its worst sales performance since the financial crisis and projected no revenue growth for the year. Its stock price has dipped almost 35% over the past year, including a 6.5% drop on Monday.

The absence of Mr. Sorrell presents the board and his eventual successor with a rare opportunity to set a new course for WPP as the company contends with a rapidly changing digital advertising landscape and pressure from clients that are slashing their marketing expenditures.

WPP has said it is conducting an internal and external search for a successor. Industry rivals, analysts and executives within the company are debating what the future of WPP will be under new leadership, with speculation ranging from asset sales to a full breakup.

Mr. Sorrell was known for his meticulous micromanagement of everything from client relationships to identifying deal targets. He was the go-to figure for perspective on the global advertising business, and his commentary was seen as a bellwether for the health of economies around the world. He built WPP into a conglomerate of more than 400 companies through frenetic deal making, including the acquisition of ad agencies such as Ogilvy & Mather.

"It's a seismic blow for WPP, but one that will also have massive ramifications for the entire advertising industry," said David Jones, the former CEO of Havas from 2011 to 2014 and the founder of brand technology company You & Mr Jones. Mr. Sorrell was one of the few figures who fought for the whole industry, including taking on technology companies such as Facebook Inc. and Alphabet Inc.'s Google, he said.

Maurice Lévy, who stepped aside last year as the CEO of ad holding company Publicis Groupe SA after three decades, said he "didn't open a bottle of champagne or even a bottle of Perrier" when he found out that Mr. Sorrell had stepped aside, despite the fierce clashes between the rivals over the years.

Still, Mr. Lévy, who remains chairman, acknowledged Mr. Sorrell's passion for WPP. "He built WPP into what it is today and it's sad to see him leave by a back door," Mr. Lévy said.

Mr. Sorrell's strategy was largely driven by acquisitions, which paid dividends over the years by giving the ad company protection from ad spending declines in certain geographical areas or downturns in different marketing disciplines.

He was ruthlessly competitive when it came to securing a deal. In 2007, on hearing rival ad firm Havas SA was close to signing a deal with U.K. marketing agency CHI & Partners, Mr. Sorrell repeatedly rang CHI & Partners CEO Johnny Hornby and contacted his friends to warn him he was making a mistake, Mr. Hornby said.

Mr. Sorrell even tracked him down at a London opera and tapped him on the shoulder during the intermission. Still under a nondisclosure agreement with Havas, Mr. Hornby declined to talk.

When the nondisclosure agreement came to an end, Mr. Sorrell jumped on a plane from San Francisco to meet Mr. Hornby at the Geneva airport, near the ski area where he was vacationing with his family. An hour later, WPP had signed a deal to acquire 49.9% of CHI & Partners.

"Martin will go down as one of the biggest names in business of this century and what he built and how he built it is probably never going to be repeated, so it's definitely the end of an era," said Mr. Hornby.

WPP's response to its unwieldy collection of businesses has been to push so-called horizontality, which is to get various agencies across the company to work together and offer clients a simpler structure that integrates marketing functions such as data, digital, creative advertising and media buying.

However, several WPP executives said this strategy has faced resistance internally and hasn't been effective. That is, in part, because of how executives are paid. Agencies are incentivized to generate revenue for their specific shops, which encourages competition with sister agencies.

"We are asked to behave in one way, but we are paid to behave in a different way," said one WPP executive.

Mr. Sorrell's exit has raised bigger questions about WPP's future, with analysts including Alex DeGroote of Cenkos suggesting that the company should be broken up and sold in pieces. Mr. DeGroote estimates that separating the company's digital, advertising, market research and other assets could lead to a 40% rise in the share price.

WPP could raise GBP3.5 billion ($5 billion) from the sale of its data-investment assets, including Kantar Media, Liberum analysts wrote in a research note Monday. If new management "wanted to go further," Liberum said that WPP's public-relations assets could also be sold.

"Without question, WPP, as well as all of the big [advertising] holding companies, are going through a period where they are going to need radical change," said Mr. Hornby.

--Nick Kostov and Suzanne Vranica contributed to this article.

Write to Lara O'Reilly at lara.o'reilly@wsj.com and Alexandra Bruell at alexandra.bruell@wsj.com

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Financials (GBP)
Sales 2018 12 954 M
EBIT 2018 2 138 M
Net income 2018 1 390 M
Debt 2018 4 252 M
Yield 2018 5,19%
P/E ratio 2018 10,32
P/E ratio 2019 10,23
EV / Sales 2018 1,44x
EV / Sales 2019 1,38x
Capitalization 14 466 M
Duration : Period :
WPP Group Technical Analysis Chart | MarketScreener
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Technical analysis trends WPP GROUP
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 27
Average target price 13,7  GBP
Spread / Average Target 19%
EPS Revisions
Mark Julian Read Chief Executive Officer & Executive Director
Roberto Quarta Non-Executive Chairman
Andrew Grant Balfour Scott Chief Operating Officer
Paul W. G. Richardson Executive Director & Group Finance Director
Rui Gang Li Non-Executive Director
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