WPP Wpp Plc

By Nick Kostov 

WPP PLC's interim management is pouring cold water on analyst demands for a breakup of the world's largest advertising group in the wake of founder Martin Sorrell's departure.

The 73-year-old's exit as WPP chief executive, following an investigation into an allegation of personal misconduct, has financial analysts performing sum-of-parts valuations for WPP's sprawling ad empire.

"We don't believe this makes sense," Mark Read, WPP's freshly appointed co-chief operating officer, wrote in a memo to staff on Thursday.

Earlier this month, WPP said an independent counsel has been appointed to look into "an allegation of personal misconduct" after The Wall Street Journal reported on the probe. The Journal reported that the board was also looking into whether Mr. Sorrell misused company assets. WPP said any possible misconduct did not involve sums that were material to the company. Mr. Sorrell denied any financial impropriety.

WPP said it is treating the departure as a retirement, and the investigation's findings are confidential.

"WPP is a great business with outstanding people, world-class agencies and most of the world's leading companies as its clients and partners," Mr. Read wrote Thursday. "Nothing that's happened in the last week has changed that."

Mr. Sorrell's departure has stoked investor anxieties about how the business will fare without the person who built it from the ground up. In his 33-year career at WPP, Mr. Sorrell transformed a manufacturer of shopping baskets into a holding company encompassing more than 400 agencies that provide marketing campaigns for clients such as Unilever PLC and Coca-Cola Co.

That business model was designed to insulate the company from downturns in ad spending in different countries.

But digital disruption is leading advertisers that once splurged on ad agency-led campaigns to redirect their spending. The company last month posted its worst sales performance since the financial crisis and projected no revenue growth for the year. Its stock price has dipped almost 35% over the past year, including a 6.5% drop on Monday after Mr. Sorrell stepped down.

Analysts at London brokerage Liberum described Mr. Sorrell as "the glue that bound much of WPP together."

Kantar, the company's market research unit, is "the most obvious candidate for disposal," Liberum wrote in a research note, adding a sale could raise 3.5 billion pounds to reduce debt or return cash to shareholders.

Alex DeGroote of Cenkos, the London brokerage, said separating the company's digital, advertising, market research and other assets could lead to a 40% rise in the share price.

"The problem isn't replacing Martin. The problem is that the model doesn't work," he said.

Mr. Read is serving as chief operating officer alongside Andrew Scott, previously WPP's corporate development director and chief operating officer for Europe, until a new CEO is found.

WPP's board has tapped New York-based recruitment firm Russell Reynolds to conduct a global search to replace Mr. Sorrell, according to a person familiar with the matter.

The next CEO will need to review WPP's strategy at a time when the company faces a quickly changing digital advertising landscape and pressure from clients that are moving their marketing spend away from traditional agencies.

On Omnicom Group Inc.'s earnings call Tuesday, Mr. Wren said Kantar was "not a key focus for our acquisition dollars," adding: "There will be any one of a number of other buyers, including probably private equity."

Publicis Chief Executive Arthur Sadoun declined "to speculate on the future of WPP" when he was asked on an earnings call Thursday about the possibility of acquiring WPP assets.

Under Mr. Sorrell, WPP moved to align its different agencies, cut costs and allow clients to work with advertising staff that previously had been siloed. WPP executives often refer to this approach as "horizontality."

"There's universal admiration for Martin's achievements, and sadness about his departure," Mr. Read said. "At the same time, there's a huge amount of support and goodwill for the company, and no shortage of confidence about the future."

Write to Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

April 19, 2018 12:22 ET (16:22 GMT)

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