Rudderless WPP sails into a storm without Martin Sorrell at the helm

The departure of Martin Sorrell, the face of WPP for three decades, raises questions about the firm's future. (AFP)
Updated 18 April 2018
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Rudderless WPP sails into a storm without Martin Sorrell at the helm

  • The sudden departure of Sorrell has sparked questions as to whether the holding group can remain in its current form of employing 200,000 people in more than 400 agencies across 112 countries.
  • WPP said that chairman Roberto Quarta will step up to be executive chairman while its digital boss Mark Read and Andrew Scott, the chief operating officer of WPP Europe, become joint chief operating officers.

WPP, the world’s biggest advertising company, entered uncharted territory on Monday without its founder Martin Sorrell whose departure has left it rudderless at a time of swirling industry change.
Shares in the group fell 4 percent after Sorrell, the driving force behind 33 years of dealmaking and relentless expansion, stepped down on Saturday after the board investigated an allegation of misconduct.
The sudden departure of Sorrell, the face of the company since he founded it in 1985, has sparked questions as to whether the holding group can remain in its current form of employing 200,000 people in more than 400 agencies across 112 countries. It has also prompted fears that without Sorrell’s contacts it could lose clients and talent while it seeks out a new CEO.
“Sorrell’s departure is negative considering ... how instrumental he has been in assembling the assets WPP has today,” said Pivotal Research analyst Brian Wieser.
WPP said that chairman Roberto Quarta will step up to be executive chairman while its digital boss Mark Read and Andrew Scott, the chief operating officer of WPP Europe who oversaw acquisitions, become joint chief operating officers.
They inherit a difficult task, with WPP in March publishing its weakest results since the financial crisis as consumer goods groups such as Unilever and P&G cut spending and other customers jumped ship.
The industry is also battling the might of Google and Facebook, which dominate the online advertising market, and watching nervously as consultants such as Accenture move more aggressively into the sector. The changing dynamics have meant the previous idea of building marketing groups up to offer advertising, branding, planning and research on a global scale — championed by Sorrell and followed by others — is now under threat as clients want more nimble relationships in a digital age.
Many are starting to ask if they can do things differently — creating their own content to place directly on online platforms or working with smaller ad groups. Analysts are already saying that WPP’s market research arm Kantar could be sold off for around
£3.5 billion ($5 billion), compared with the group’s overall market value of £14.5 billion, and question whether there are synergies from holding PR assets like Finsbury.
“We think the lack of operational direction for the group and potential for client losses are clear downside risks over the short to medium term,” Deutsche Bank said.
“The potential for asset sales or even a break-up may provide some support, but these are highly uncertain and unlikely to take place in the near-term.”
Sorrell, 73, did not have a non-compete clause and could set up a new advertising business. He owns 1.4 percent of WPP, according to Thomson Reuters data.
With so much change in the industry, some analysts have questioned whether the group should seek a new CEO from outside who could look at it dispassionately.

 

Names already in the frame include Jerry Buhlmann, who runs the Dentsu Aegis network, and Adam Crozier who previously ran broadcaster ITV and Royal Mail. Jeremy Darroch, the well regarded CEO of bid target Sky, and Andrew Robertson, boss of rival ad agency BBDO, have also been linked with the job. From inside WPP Read, 51, is seen as the lead candidate. While a common refrain heard about WPP is that no one knows the company like Sorrell, Read is the one man who comes close after he wrote to the WPP boss asking for a job in 1989. From the company’s office in Farm Street, Mayfair, he watched as Sorrell pulled off a string of takeovers before building his own profile by growing its digital operations. He spent nearly 10 years on the WPP board, introducing him to investors, and is regarded by peers as a strategic thinker who can win corporate pitches to bring in work.
Scott, 49, is better known in the corporate world than the advertising community, having worked on the company’s acquisition strategy.
“Mark will be responsible for clients, operating companies and people,” a spokesman said. “Andrew will focus on financial and operational performance and implementing on-going reorganization of the group’s portfolio.” They will “report to and be supported” by Chairman Quarta. Read has already contacted senior executives within WPP to offer to speak to clients and reassure them that work will continue as normal.
Whoever replaces Sorrell however will face longer-term questions as to whether a group that was built in his mold should remain intact after his departure. Already executives are predicting that bits will be sold off in a move that could once again become a model for the wider industry.
David Jones, the former CEO of WPP peer Havas and the founder of tech marketing group You and Mr.Jones, predicted WPP would eventually end up missing Sorrell more than he would WPP. “No one else can keep that company together the way he has been able to because he built it,” he told Reuters. “It’s the fall of an emperor and one that I think will not only take the empire down with him but will also have massive ramifications for that entire industry.”

FASTFACTS

Martin Sorrell, WPP’s founder and CEO, quit on Saturday after a board investigation into alleged misconduct. Two executives appointed joint COO as CEO hunt begins. Departure comes at time of huge industry change. WPP shares down 4 percent.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.