Martin Sorrell’s sudden exit from British advertising giant WPP could hasten a break-up of the group already struggling against fierce online competition, according to analysts.
Sorrell, chief executive and founder of the group, resigned over the weekend, shortly after WPP launched an independent probe into an allegation that he misused company assets.
While the investigation concluded that “the allegation did not involve amounts that are material”, Sorrell shocked the industry with his surprise departure after 33 years at the helm.
The 73-year old who received a knighthood from Queen Elizabeth II in 2000, handing him the title of ‘Sir’, had denied any “financial impropriety” on his part.
“Sir Martin could arguably be called the glue that bound much of WPP together,” financial group Liberum said in a note to clients on Tuesday.
“With his departure, we think the chances of significant chunks of the business being sold off have dramatically increased.”
Liberum said there was now “a significant possibility” that WPP would sell its Data Investment unit that specialises in market research, while it could offload also its PR business — leaving the organisation to concentrate on core advertising.
Liberum added that Sorrell still owns about two percent of WPP, which employs some 200,000 people worldwide.
Over the past year, Sorrell has seen the value of his stake tumble, with WPP’s share prices slumping by one third in value.
The share price slid by six percent on Monday before pulling back slightly in Tuesday trades.
Long-serving Sorrell had meanwhile already made controversial headlines in recent years regarding his sizeable pay, at a time when traditional advertising groups struggle against fierce competition from the likes of Google and Facebook amid reduced advertising spend by multinationals.
“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.
Awaiting the appointment of a replacement, WPP has made its chairman Roberto Quarta executive chairman.
– Wire baskets –
Born in London, Sorrell studied economics at the University of Cambridge, before moving on to Harvard.
He joined the Saatchi and Saatchi advertising agency in 1975 before creating WPP from a shell company.
In 1986, Sorrell turned Wire and Plastic Products, which made wire baskets for retailers, into a marketing services group.
WPP has grown into one of the world’s largest communications groups, working out of some 3,000 offices after snapping up numerous smaller rivals.