Sir Martin Sorrell’s abrupt resignation from WPP triggered a 6.5% slide in the group’s share price on Monday as investors mulled the uncertain future of the world’s largest advertising business.
Sir Martin, who founded WPP 33 years ago, resigned with immediate effect on Saturday amid an investigation into allegations of personal misconduct.
Analysts reacted cautiously to the resignation, telling investors there will not be an immediate crisis at WPP. However, they acknowledged that the market had reacted to uncertainty over succession planning at WPP, compounding a performance that has resulted in shares in the group declining by a third over the past year.
One of WPP’s largest shareholders, Harris Associates, said it was “regrettable” to have a leadership transition without Sorrell’s involvement.
“It highlights the apparent lack of detailed succession planning that has troubled us and many other observers for some time,” Roddy Davidson, an analyst at investment group Shore Capital, said. “We are not overly concerned about the immediate impact of Sorrell’s departure on the group’s flagship agencies as these are major international enterprises in their own right, with strong performance track records and independent management structures. That said, the resultant vacuum at the top of the company is not ideal.”
1975
It may not seem like it but Sir Martin Sorrell had a career before WPP. His affair with advertising began as Saatchi & Saatchi’s first finance director
1985
Sorrell made his first step toward global domination at the age of 40, investing in a small Kent-based maker of wire baskets called Wire & Plastic Products
1987
Sorrell announces himself on the global stage by buying J Walter Thompson, the world’s oldest ad agency and an iconic US brand for $566m. In 1988 he listed on NASDAQ exchange in New York
1989
WPP’s closest call with death came following an audacious debt-fuelled move to buy Ogilvy & Mather for $864m
1991
Sorrell paid too much for O&M and as the recession-hit WPP almost went out of business, a profit warning in 1990 sent its shares tumbling from 650p in 1989 to 115p. The company made a life-saving financial restructure but the close call damaged Sorrell’s reputation as a deal maker
2005
Sorrell buys Ed Meyer’s Grey Global for £845m
2007
Sorrell launches a libel action against two former colleagues for allegedly labelling him and a female executive “the mad dwarf and the nympho schizo” while circulating a “vicious” email image of them. Sorrell accepts a settlement of £120,000 damages
2008
He moves WPP’s tax domicile to Ireland in protest at the prospect of “double taxation” of overseas profits - once abroad and once again in the UK. It moves back to the UK five years later after the government enacted legislation covering the taxation of foreign profits
2012
The rising unrest at unbridled boardroom pay boiled over into a series of investor revolts, with Sorrell one of its most high-profile scalps. This was the year of the biggest of a series WPP investor rebellions with 60% rejecting his annual pay package
2015
Sorrell’s £70.4m pay out is one of the biggest pay deals in UK corporate history. By the end of 2016 he has made more than £200m over a five year period
2017
WPP endures its worst annual performance since the advertising recession of 2009, sending its share price tumbling by more than a third
2018
Sorrell’s iron grip running WPP comes under threat after the board hires a law firm to investigate allegation of personal misconduct. He stepped down on 14 April
WPP’s share price ended the day down 6.5% at £11.11p – adding pressure on the already embattled ad group. The next test for WPP comes on 30 April when the company reports its first quarter results, with a failure to meet analysts’ expectations likely to increase the pressure for a break-up or disposals.
Sorrell, 73, has “unreservedly denied” the misconduct allegations and WPP’s board has said it will not be publishing the outcome of the investigations into them by an independent law firm. The decision not to publish was criticised by the Liberal Democrat leader, Sir Vince Cable, who said there was a “real lack of transparency” and “any investigations done by the company should be made public”. The company said it had concluded the investigation and had no further comment to make.
After years of above-par performances WPP put out two growth warnings last year – before reporting its worst financial year since the 2009 ad recession – as clients pulled budgets and investors started to question the future of the global holding company model in the increasingly digital age.
“Whether WPP should survive in its current form is a more challenging question,” Davidson said. “Particularly as an increasingly complex and dynamic media landscape, and growing competition from more focused players will, in our view, require a degree of flexibility and agility that large holding companies could struggle to deliver.”
A number of names have emerged as potential runners and riders to succeed Sorrell, including the chief executive of publishing and exhibitions group Informa, Stephen Carter, who has worked at Ofcom, the cable firm NTL and at WPP’s ad agency JWT; Adam Crozier, whose pedigree includes running ITV, Royal Mail, the Football Association and Saatchi & Saatchi; the Sky chief executive, Jeremy Darroch, and Andrew Robertson, chief executive of WPP rival Omnicom’s global BBDO ad network.
The frontrunning internal candidates are Mark Read, the chief executive of Wunderman and WPP Digital, and Andrew Scott, a top executive at WPP’s European operation, who were appointed WPP’s joint chief operating officers following Sorrell’s departure on Saturday.
“We believe Sir Martin will be hard to replace with one person,” Paul Richards, analyst at Numis, said. “The succession has led to questions over the size and scope of WPP. Our base case is for a new management team to continue and refine the existing strategy, though we acknowledge that any group without a chief executive is vulnerable to a bid approach in the interregnum.”
Alex DeGroote, analyst at Cenkos Securities, puts the break-up value of WPP’s parts at about £17 a share, valuing the group at £22bn. WPP’s current share price is £11.50, a market capitalisation of £15bn.
