Sir Martin Sorrell’s abrupt resignation from WPP triggered a 7% 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.
Sorrell has “unreservedly denied” the allegations and WPP’s board has said it will not be publishing the outcome of the investigation, carried out by an external law firm.
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.
“It highlights the apparent lack of detailed succession planning that has troubled us and many other observers for some time,” Roddy Davidson, 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.”
The next test for WPP comes on 30 April when the company reports its first quarter results. If it fails to meet analyst expectations the share price will take another hit and investor talk of a break-up will likely get louder.
After years of stellar performances WPP put out two growth warnings last year – before reporting its worst 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, including the Informa chief executive, 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 appear to be 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 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.