Although the news story carries the headline: "Sorrell hints at breaking up WPP," a source at WPP who is familiar with the situation vigorously denied that WPP is considering a break up of the parent company if it doesn't add value to its operating companies or clients within five years.
Instead, WPP is only evaluating its role as a parent company. If the parent company does not generate enough revenues and intangible benefits to cover its costs, then WPP might consider options like reverting back to a financial holding company, more along the lines of Interpublic or Omnicom, the source says. There is no question of selling or spinning off any of its operations, the source says. Sorrell was traveling and not available for comment.
The news story highlights a lengthy feature article on management in the March 13 Financial Times in which Sorrell discusses the role of parent companies. In the article, Sorrell estimated that holding companies in the advertising industry cost between 1% and 1.5% of revenues, or in WPP's case between $25.4m and $27m a year. In addition to its traditional role as a financial holding company, Sorrell outlined in the Financial Times article five areas where the parent company can add value: human resources, property management, procurement, information technology and practice development, or getting the group's 40 operating companies to work together on areas such as research.
The flurry of attention the Financial Times article has created comes at a delicate time for Sorrell. If WPP's share price remains at 230 pence by the close of next Monday, Sorrell will receive the second tranche of shares as part of his long-term, performance related compensation plan. By mid-day on March 13, WPP's share price was up 14 pence to 278p.
Copyright March 1997, Crain Communications Inc.