The chance of WPP being broken up has ‘dramatically increased’ — Goldman, UBS, and more react to Sir Martin Sorrell leaving

Sir Martin Sorrell Chief Executive WPP during Advertising Week Europe, Picadilly, on March 25, 2015 in London, England. (Photo by k)

LONDON — Sir Martin Sorrell announced on Saturday that he is leaving advertising giant WPP after 33 years as CEO.

His exit comes as something of a surprise — investors had no reason to expect his exit as recently as three weeks ago. But it was reported at the start of the month that Sorrell was subject to an internal investigation into alleged misconduct and misuse of assets.

Sorrell denied all the allegations against him but said in a letter to staff on Saturday that the “current disruption” was “putting too much unnecessary pressure on the business.”

WPP chairman Roberto Quarta will act as interim CEO until a replacement is found. Meanwhile, Mark Read, CEO of WPP’s Wunderman unit, and Andrew Scott, European COO, have been announced joint-COOs of WPP. Liberum’s media analyst Ian Whittaker says this “will heighten speculation that they will be the top contenders for the slot.”

Whittaker isn’t the only analyst reacting to Sorrell’s departure. Others are touting a potential breakup of WPP, the sell-off of minority investments, and even possible disruption to bids for key accounts.

Here’s what major analysts are saying:

SEE ALSO: WPP CEO Sir Martin Sorrell is reportedly under investigation after allegations of misuse of assets and improper behavior

DON’T MISS: Ad giant WPP’s shares drop 5% after CEO and founder Sir Martin Sorrell quits

BARCLAYS: ‘Operating management distracted during the expected Mediapalooza 2’

Barclays European media analyst Julien Roch and team: “Potential negatives resulting from change in CEO: We see three potential negatives: (1) operating management being distracted during the expected Mediapalooza 2 [lots of major accounts being re-tendered], (2) new CEO could restructure WPP more radically leading to high restructuring costs in the short-term, which would take WPP above its gearing target and (3) European media shares usually underperform around management changes.

“Potential positives resulting from change in CEO: In our view, the main potential positive outcome from a change in management would be a more rapid and radical restructuring to address the industry’s current woes.”

GOLDMAN SACHS: ‘A new CEO could look to more significantly restructure the group’

Goldman analyst Lisa Yang and team: “We view the timing of Mr Sorrell’s departure as a surprise given the relative lack of clarity over the succession planning process.

“We see a potential risk of disruption to WPP’s operations in the near-term given Mr Sorrell’s close involvement in the business for the past 33 years, especially at a critical time when WPP is renegotiating its relationship with its largest client Ford (4% of net sales) and defending a number of accounts including Mars, Jaguar, HSBC, Shell etc (representing 0.5% of net sales at risk).

“While we do not take a view on the likelihood of any outcome, we believe a new CEO could consider exploring options for underperforming assets such as a disposal downsizing, based on press reports (MediaPost). As we have previously discussed, we note that Kantar (15% of group net sales and PBIT) has been a notable drag on organic growth in recent years.

“We believe a new CEO could look …read more

Source:: Business Insider


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