WPP looks to sell stake in Kantar as Q3 results send shares plunging

Dive Brief:

WPP announced Thursday in a Q3 earnings report that it's reviewing strategic options for Kantar and is open to selling its stake in the data and market research division given pressing financial priorities. Kantar makes up roughly 15% of WPP's sales, according to Bloomberg, but has been viewed by analysts as underperforming.
The news came amid rough results for WPP which saw like-for-like organic sales slip 1.5% compared to the 0.3% in growth forecast by analysts, per Bloomberg. Poor performance in North America and among creative agencies, along with the loss of major client accounts, were sharply felt. Shares in WPP plunged as much as 23% Thursday, at one point erasing about $3.9 billion in market value.
In a statement around the earnings, CEO Mark Read said the company has received "unsolicited expressions of interest" in Kantar. Read said that WPP would still be looking to retain shares and strategic links to the unit to "ensure benefits to clients are realised."

Dive Insight:

There have been rumblings that WPP could consider selling off parts of Kantar for months, but the official announcement marks a turning point for the world's largest ad holding group and a significant move by freshly minted CEO Read. WPP has, in recent years, focused on streamlining and consolidating its internal agencies, but the Kantar news signifies that the company is desperate to shed more weight as it continues to financially underperform, especially in key markets like North America.

"One of the impacts of a Kantar sale could be less integration of Kantar data and business intelligence into WPP client work," Jay Pattisall, a principal analyst at Forrester Research, said in emailed comments to Marketing Dive. "This could be the result of conflicts with the new partner’s existing business, or changes in a newly owned Kantar’s pricing structure that strains WPP budgets. A more likely result would be WPP gaining greater levels of data and business intelligence from Kantar and a new strategic partner such as a Neilsen, Experience or Nuestar."

In its Q3 earnings report, WPP estimated its full-year operating margin would be down around 1 to 1.5 margin points versus its previously forecast dip of just 0.4 margin points, according to Bloomberg. Selling a stake in Kantar could improve WPP's financial prospects. In April, the British newspaper The Times reported Eric Salama, head of Kantar, had been in talks with banks and private equity firms about a potential buyout for $4.8 billion. Bloomberg reported the investment banking firm Liberum has valued Kantar at more than 3 billion pounds ($3.85 billion).

It's important to keep in mind that the details of a potential Kantar sale are hazy at the moment, according to Pattisall, who noted it's not clear whether the decision only impacts Kantar's core retail business or if other arms of the unit, such as Kantar Futures, Kantar Vermeer and Kantar Added Value, would also be affected.

"Collectively they represent a trends and innovation capability, advanced analytics and org design," Pattisall said in his comments. "Each could prove useful to WPP operating companies like VML/Y&R, Grey or Wunderman that have existing consulting practices or to some of the US based creative agencies that need to better integrate their create offering with data."

The push for a Kantar sale being attached to grim Q3 earnings ultimately shows Read getting off to a shaky start since stepping in as WPP's CEO in September. Read took the helm from Martin Sorrell, WPP's founder, who resigned in April after more than 30 years leading the company. While Read initially appeared to resist further consolidating WPP's massive, complicated global agency network, he's recently changed his tune. Late last month, Read merged Young & Rubicam with VML to form a new digitally focused agency called VMLY&R. The entity just a few weeks later lost PepsiCo as a client, an account WPP estimates brought in $50 million in billings.

Other recent client losses have hit WPP hard as well. Ford earlier in this month shifted its creative business away from WPP's dedicated agency unit GTB to BBDO. American Express also switched from Mindshare to IPG's Universal McCann, which WPP expects accounted for $400 million in billings.