WPP has said it is reviewing its options for its research, data and insight division, Kantar, including selling part of the business to a strategic or financial partner – a move that new CEO Mark Read hopes will “further improve our balance sheet” after a tumultuous year for the company.
“We believe in the potential for Kantar but given our many priorities, we need to make tough choices,” Read said. Any sale would see WPP remain a share owner in the business, which he said has already received “unsolicited expressions of interest.”
Read also promised shareholders that in future, WPP will “pay greater attention to capital discipline” and “focus our acquisition spending only on the most strategic opportunities.”
According to media analyst Alex DeGroote, the group’s decision to divest Kantar is of no real surprise.
“We know market research is an attractive data-oriented business sector, but we also know WPP needs to raise funds,” he told Mediatel.
“Kantar, or Data Investment Management as it’s known in the City, accounts for c17% of the group revenue overall. It contains well known research brands like Taylor Nelson Sofres, Millward Brown. These are attractive independently, so it will be interesting to see the sale structure. Will brands be sold?”
With DeGroote valuing the whole division at £3-3.5 billion, he expects WPP to offload a 30% stake, netting the company roughly £1bn. The likely buyer is a private equity group, “who are awash with cash right now.”
“WPP itself remains under intense pressure, and new CEO Mark Read has a real job on his hands. Overall group performance in the US is still pretty poor, and this will be a key focus. However, selling off Kantar is a useful start,” he said.
Trading Update
Neither Kantar’s for-sale sign or the unexpected merger of agencies VML and Y&R earlier this month have been able to appease the group’s shareholders, however; share price fell by as much as 22% in the hours following WPP’s third quarter trading update.
The advertising giant fell short of Q3 net sales expectations, with like-for-like sales falling -1.5% against analyst expectations of +0.4%. WPP’s reported revenue also dropped -0.8% to £3.8bn.
Analysts from Liberum said these results, compared to the “generally well-received” Q3 results of other agency groups, will raise questions – particularly over its North American business.
Q3 advertising and media net sales in the territory were down 4%, “but what is more concerning is the language suggests significant client losses in media, which is the highest margin business in both the UK and North America,” they said.
So far this year WPP has lost key clients including HSBC, American Airlines and Ford; Read has promised a full strategy update in December.
