THE BUZZARDS CIRCLE THE WOUNDED CARCASS OF WWP: WHAT NEXT FOR THE LEVIATHAN?

By - CTL
April 20, 2018
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By Marcus Honesta.

The buzzards are already circling the wounded corpse of the once great Leviathan, WPP. Almost AUD $1.8 Billion was wiped off the value of WPP as the advertising giant launched a hunt for a chief executive to succeed Martin Sorrell amid mounting fears that his exit could precipitate a breakup of the company.

Shares in WPP closed down 6.5 per cent at AUD $20.25, valuing the group at just over AUD $25,515 Billion on the first day of trading after Sorrell’s resignation.

A breakup of WPP could net shareholders more than AUD $30.9 Billion, about AUD $23.95 a share, much more than its current value of AUD$15.75 a share or $25,515 Billion, market cap, according to analysts.

As well as uncertainty about the future of WPP, there is anger about the company’s use of the nondisclosure agreements, which mean that allegations of personal misconduct and abuse of company funds against Sir Martin, which he denies, are unlikely to ever be publicly aired.

An inside source close to CTL said: the really interesting thing here was neither the board nor Sorrell could agree on a succession plan and that is because they couldn’t agree on the strategy for WPP going forward. “Sir Martin was one of the great advertising visionaries, his track record stands alone, but it goes to show if your plans for evolution of your business are lapped by your clients’ expectations then it can all go wrong very quickly”.

Crazy that it came to this but they were all resting on their laurels and a plump share price that was until the shit hit the fan”. 

“It was always going to happen. He should have merged two of the creative networks with two of the media networks and then two digital networks, then left a band of global specialists de-merged”.

 

Sorrell built WPP into one of the world’s biggest advertising companies, with more than 200,000 staff and annual revenues of AUD $25.5 Billion. His departure came less than two weeks after it emerged that WPP had launched an independent investigation into Sir Martin. WPP has now concluded the investigation.

David Herro, of Harris Associates, WPP’s biggest shareholder, with a 7.4 per cent stake, said it was regrettable that Sir Martin, Britain’s longest serving FTSE 100 chief executive, had been forced out in this way and with no firm succession plan in place”.

 “Sir Martin is a visionary, a legend in advertising and a skilful businessman,” Mr Herro said. “The circumstances surrounding this are regrettable, as is a leadership transition without Sir Martin’s involvement.”

The company, which has been struggling in the face of intense competition from Internet giants such as Google, now has to find a chief executive. Last month WPP published its weakest annual results since the financial crisis. The company’s share price has fallen by a third over the past year.

In the interim Roberto Quarta, the chairman, has taken an executive role while Mark Read, chief executive of WPP Digital, and Andrew Scott, chief operating officer for Europe, have been named co-chief operating officers.

The nature of Sir Martin’s departure has been questioned after it emerged that WPP was unlikely to reveal the allegations against him or the finding of its investigation. Sir Martin leaves WPP with share awards worth AUD 35 million.

Sir Vince Cable, the Liberal Democrat leader, accused WPP of sweeping the claims “under the carpet”. He acknowledged that Sir Martin, who owns 1.4 per cent of WPP, was a “highly respected figure”, but added that “any investigations done by the company should be made public”.

Alan MacDougall, managing director of Pensions and Investment Research Consultants, the corporate governance group, was seeking information from the company about the circumstances of Sir Martin’s departure on the assumption that they have an obligation to inform shareholders”.

Analysts at Barclays warned that the company faced an uncertain period, with new management being distracted during the expected Mediapalooza”.

They also said that a new chief executive might consider a breakup of WPP’s complex structure, which Sir Martin had assembled over decades, suggesting that any new leader could restructure WPP more radically”.

A prominent English City analysts said: “that a breakup of WPP now looked increasingly likely, with Kantar, the market research unit, viewed as a frontrunner to be spun off. Such a deal could raise about AUD$6.35 billion.

“Sir Martin Sorrell’s resignation comes at a time when the company is already facing a number of operational challenges and introduces uncertainty over the strategy and ultimately the structure of the group going forward,” said Christian Azzi, an analyst for Moody’s, which has not ruled out downgrading the group’s debt rating.

“In Moody’s view, the high-profile departure of Sir Martin Sorrell raises concerns over the future strategy and shape of the group, increases client-retention risk and could hence hinder WPP’s ability to meet its 2018 (earnings) guidance,” Azzi added.

In a message to staff yesterday, Sir Martin sought to raise morale, claiming that WPP had weathered “difficult storms” in the past. He said the crisis had placed, “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”.

In what could only be described as a panic rear guard action Mark Read – who has been jointly appointed with Andrew Scott as chief operating officers of WPP – said a potential break-up of the group, which has been heavily speculated, is not viable.

To everyone at WPP,

Over the last four days I’ve spent as much time as possible speaking to our people and clients. There’s universal admiration for Martin’s achievements, and sadness about his departure. At the same time, there’s a huge amount of support and goodwill for the company, and no shortage of confidence about the future.

That confidence is well founded. The companies and client teams that make up WPP are exceptionally good at what they do. They are major organisations in their own right, with their own strong leaders. The clients I’ve spoken to have all been clear: they value their partner agencies and teams, they expect them to continue to deliver, and they have no doubt that they will.

Andrew and I have been given a very clear brief by the board. First, to run the business on a day-to-day basis. I’m looking after people, clients and companies and Andrew is focused on operational and financial performances and managing the WPP portfolio. And second, to move forward decisively on the group’s strategy. We have tremendous strengths within WPP, and we plan to build on those while bringing our own perspective and ideas.

WPP’s greatest strength is the depth and diversity of our talent (meaning you). We’re working closely with the leaders of our companies, and listening carefully to their views, as we develop our plans.

Some things we know already: we’ll get even closer to our clients to better understand and meet their needs and to help them grow in a world of disruption; we’ll get closer to technology partners like Adobe, Facebook, Google, Microsoft and others; we’ll make sure our structure and offer make it as simple as possible for clients to access our services across the group; and we’ll put data, technology AND creativity at the heart of what we do.

There’s been speculation about breaking up the group. We don’t believe this makes sense. In a world where clients need faster, more agile, integrated solutions, we need to get closer together – not further apart.

We’ll share more as soon as we can but, in the meantime, if you have questions let us know and we’ll do our best to answer them: mark.read@wpp.com andrew.scott@wpp.com.

WPP is a great business with outstanding people, world-class agencies and most of the world’s leading companies as its clients and partners.

Nothing that’s happened in the last week has changed that.

Mark Read

Chief operating officer, WPP

One might say too little too late. Without doubt this must call into question the doubtful “Hogarth Experiment”, it only shows how out of touch they (WPP) really are. It also demonstrates how Sorrell and his management team missed the mark and perspective of what the real future agency landscape might be. They can’t or won’t acknowledge that clients will not be bullied into giving their entire marketing budgets to agencies they don’t trust.

Forget the hyperbole and extravagant promises that are endeavouring to wallpaper over the cracks at WPP. The truth is they have simply has missed the whole point. Statements made by the likes of Mike Connaghan, CEO WPP AUNZ saying: “Combining the global muscle of an iconic brand such as Hogarth with the local expertise and strength of four successful production houses represents a fabulous opportunity for us to lead the way in content production in Australia and further solidify our leadership position in the region”.

“This model is already proving highly successful for Hogarth in other markets, and will no doubt bring great benefits to local clients and agencies alike, whether they are part of WPP AUNZ or not.  Hogarth’s global success has demonstrated it is a model that represents the future of production, and we cannot be more excited to be launching it here.”

Or: Kevan Thorn Joint CEO of Hogarth Worldwide said: “One of Hogarth’s key strengths is its ability to provide highly effective multi-brand, multi-market solutions to global clients, so building such a comprehensive partnership to serve the Australian market is a big advance for us. This is a great addition to our growing production network and we look forward to being the production backbone for WPP AUNZ agencies and clients.”

Justin Ricketts CEO Hogarth Australia said: “In today’s evolving media landscape, clients demand increasing amounts of content, and the time is right to disrupt old habits and evolve the production model.  I believe at Hogarth Australia we have a way to make campaign assets better and faster and can provide our clients with a genuine end-to-end production offering, that will deliver higher quality marketing assets with better economics, while maintaining and enhancing creative integrity”

This dross will simply just no be believed by an ever increasingly cynical marketplace! The result of this folly will be the acceleration of the de-coupling model, where clients will look outside their agency for their production needs.

 

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