Post-Sorrell WPP Breakup Theories Abound: Sell Kantar to PR

(Bloomberg) -- Martin Sorrell spent three decades building WPP Plc, the world’s largest advertising empire. His resignation is seen as potentially spurring a breakup.

The sudden exit of Sorrell, who held together the global network of more than 400 units, opens WPP up to reorganize and potentially attract bids for various divisions as its strategy shifts. Roberto Quarta, now interim executive chairman, says the company needs to optimize its portfolio. Here are five options WPP could consider to prune its reach and refocus, based on conversations with analysts and industry executives.

1. Divest Kantar

Kantar, WPP’s data management unit that gives companies insight on consumer trends, is the most obvious candidate for disposal, says Liberum analyst Ian Whittaker. While Sorrell was a strong advocate of keeping the division, Kantar’s revenues have consistently under-performed the group average and selling the business could raise 3.5 billion pounds ($5 billion), Whittaker said. The unit generates 15 percent of WPP’s net sales and potential buyers would include marketing services firm Nielsen Holdings Plc or a private-equity shop.

Post-Sorrell WPP Breakup Theories Abound: Sell Kantar to PR

2. Cut Back on PR

WPP owns a suite of public relations firms, including Finsbury, Hill + Knowlton Strategies and Burson Marsteller, which together make up 8 percent of WPP’s revenue and profits. Margins are declining in the industry and the sector has the weakest growth profile among WPP’s assets, says Alex DeGroote, a media analyst at Cenkos Securities. “WPP needs to sharpen its focus,” DeGroote says. “Ideally it wouldn’t have any PR and it wouldn’t have any market research.”

3. Sell Sorrell Stakes

Under Sorrell, WPP bought minority stakes in an array of digital, media and marketing companies over his more than 30 years at the helm, including a 15 percent holding in ad-tech firm AppNexus Inc. and a slice of global youth media outlet Vice Media LLC. “He went around the world buying 20 percent of everything he found interesting,” says Richard Pinder, a former executive at WPP rival Publicis Groupe SA. “You can probably realize a lot of value there.”

4. Shrink Creative to Grow Digital

WPP could divest one of its many creative agencies -- such as Ogilvy & Mather, J. Walter Thompson or Grey -- to a competitor like Publicis or Omnicom Group Inc., freeing up funds to invest in higher-growth areas like digital, says DeGroote. “They could well sell one or two of the big network brands,” he said. “That would help restore investor confidence in the growth agenda.”

5. Internal Consolidation

Paring the number of its internal brands is another option. WPP’s GroupM division, for example, a cluster of media-buying companies that specialize in executing ad campaigns, is a likely candidate for further consolidation, said William Eccleshare, chief executive officer of outdoor advertising firm Clear Channel International. The increasing automation of digital ad-buying creates opportunities for further savings, Eccleshare said.

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