The chance of WPP being broken up has 'dramatically increased' - Goldman, UBS, and more react to Sir Martin Sorrell leaving

Barclays European media analyst Julien Roch and team: Potential negatives resulting from change in CEO: We see three potential negatives: (1) operating management being distracted during the expected Mediapalooza 2 [lots of major accounts being re-tendered], (2) new CEO could restructure WPP more radically leading to high restructuring costs in the short-term, which would take WPP above its gearing target and (3) European media shares usually underperform around management changes. Potential positives resulting from change in CEO: In our view, the main potential positive outcome from a change in management would be a more rapid and radical restructuring to address the industry’s current woes.Goldman analyst Lisa Yang and team: We view the timing of Mr Sorrell’s departure as a surprise given the relative lack of clarity over the succession planning process. We see a potential risk of disruption to WPP’s operations in the near-term given Mr Sorrell’s close involvement in the business for the past 33 years, especially at a critical time when WPP is renegotiating its relationship with its largest client Ford (4% of net sales) and defending a number of accounts including Mars, Jaguar, HSBC, Shell etc (representing 0.5% of net sales at risk). While we do not take a view on the likelihood of any outcome, we believe a new CEO could consider exploring options for underperforming assets such as a disposal downsizing, based on press reports (MediaPost). As we have previously discussed, we note that Kantar (15% of group net sales and PBIT) has been a notable drag on organic growth in recent years. We believe a new CEO could look to more significantly restructure the group, similar to Publicis’ reorganization since 2015 into four solution hubs.Analyst Richard Eary and team: Sir Martin's resignation raises 2 questions: 1) will it impact earnings; and, 2) will new a CEO restructure the business. Uncertainty is likely to linger until a new CEO is appointed and a new strategy outlined to the market. Given agencies are run at arm's length, we don’t foresee any near-term impact of Sir Martin's departure however we are uncertain how important his relationships with CMOs was in winning and retaining clients. We believe a new CEO is likely to review the strategy and could: 1) consider the sale ofKantar which continues to underperform... 2) Divest balance sheet investments (such as Globant, AppNexus, ComScore, Vice) which have a £2.2bn valuation and contribute Analyst Ian Whittaker and team: Sir Martin could arguably be called the glue that bound much of WPP together. With his departure, we think the chances of significant chunks of the business being sold off have dramatically increased. We think there is a significant possibility that WPP will now sell its Data Investment i.e. Market Research unit, and possibly PR, but that the rest of the group will be kept. This should drive a closing of the gap between the valuations and performance of WPP and the other Agencies. One aspect of the resignation that has gained attention is that Sir Martin has not signed a non-compete clause. We would not read too much into this given Sir Martin's age but, more importantly, that WPP is his creation and he would not want to do anything that would be seen as damaging the company. Sir Martin still owns c.2% of the shares.

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The chance of WPP being broken up has 'dramatically increased' - Goldman, UBS, and more react to Sir Martin Sorrell leaving

BARCLAYS: 'Operating management distracted during the expected Mediapalooza 2'

GOLDMAN SACHS: 'A new CEO could look to more significantly restructure the group'

UBS: 'Uncertainty is likely to linger until a new CEO is appointed'

LIBERUM: 'Sir Martin could arguably be called the glue that bound much of WPP together'