Martin Sorrell calls WPP ‘catatonic’ as Goldman slaps sell rating on its own client

Sir Martin Sorrell spent 33 years turning WPP from a small Kent-based wire and plastics manufacturer into the world’s largest ad company.

He left in 2018 following a dispute over personal conduct that he has consistently denied, and has been a vocal critic of his successors ever since.

“I think they are further gone than before. It’s catatonic. It’s a bust of a flush,” he told City AM at SXSW London this week.

A Goldman Sachs note, published on Wednesday, set a 240p price target on a stock that has already shed more than 80 per cent of its value over eight years, sending shares down a further 4.5 per cent to 265.6p on the day.

“That is extremely unusual for a house broker”, Sorrell said.

The bank was unsparing in saying a return to meaningful growth would be difficult without a fundamental reshaping of the business, free cash flow would reach just £684m by 2028 – well short of the £1bn-plus generated in both 2022 and 2023 – and much of WPP’s planned £500m cost-saving programme would likely be absorbed by higher staff costs and wage inflation.

Goldman also noted that while asset sales could provide a short-term boost, any disposals would simultaneously remove the earnings those assets generated, making the net benefit uncertain.

That WPP’s own house broker would say so publicly is almost without precedent.

Even more so when contrasted with Goldman’s simultaneous coverage of WPP’s rivals.

Indeed, both Publicis and Omnicom were slapped with buy ratings, the bank crediting Publicis’s AI-led efficiency gains and Omnicom’s enlarged scale following its $13bn acquisition of IPG.

For Sorrell, the Goldman note confirmed what he has been saying for months. “Mark Read really should be hung, drawn and quartered,” he told City AM. “It’s outrageous, actually. Everybody’s polite about it, but it is outrageous.”

Read succeeded Sorrell in 2018 and departed last year after Mars pulled its $1.7bn global account.

His strategy was to simplify a sprawling operation – retiring famous agency names and consolidating them into fewer, larger units – in an attempt to create a group fit for an AI future.

JWT, Y&R, Wunderman, AKQA and Grey were absorbed or dissolved.

This month his successor announced plans to bring Ogilvy, VML and AKQA under a single creative banner, which Sorrell said was an act of destruction dressed up as strategy.

“People in the industry don’t understand how a company that’s meant to be an expert in brand building can destroy JWT, Y&R, Wunderman, AKQA, Grey – all gone,” he said. “It beggars belief.”

WPP’s debt problem

WPP carries approximately £3.7bn in debt against a market capitalisation that has shrunk to around £2.7bn, meaning its borrowings now exceed its equity value.

Read sold Kantar, Blue State and FGS Global in an effort to repair it – but the debt remains.

Goldman forecasts that WPP’s interest cover – its ability to service that debt from operating profits – will remain under pressure as margins continue to lag rivals.

WPP’s operating margin fell from 11.5 per cent to 8.2 per cent in the first half of last year, against Publicis’s 18 per cent-plus.

On the other hand, rival agency Publicis’ shares have risen by almost 200 per cent in the last five years, overtaking WPP as the world’s largest advertising group by revenue last year.

“Publicis got it right: country, then client, then discipline,” Sorrell said. “Omnicom and WPP do the reverse – discipline first, then client, then geography. That creates enormous tension and it’s not going to work.”

Into this walks Cindy Rose, the former Microsoft executive who took over as chief executive last year and who has since struck a $400m AI partnership with Google.

Having been described as “client-obsessive” by her peers, Sorrell added: “Remember what Warren Buffett said. Good management meets a bad business, the bad business always wins.”

“Her biggest problem is the debt”, he added.

‘I would break it up’

The pressure did not ease elsewhere this week, with Coca-Cola confirming it had launched a global review of its media, data and tech business, setting up a direct competition between WPP’s Open X unit and Publicis.

WPP won the full global Coca-Cola account in 2021, beating Publicis for the prize. It has since lost North America to the French group with the review, managed by consultant Mediasense, is due to conclude in the autumn. “I would break it up,” he told City AM.

The counterpoint is not lost on anyone in the industry. S4 Capital, the digital-first company Sorrell built in 2018 as his answer to the holding company model he now criticises, has shed 97 per cent of its value since its 2021 peak.

This week it announced a further 150 redundancies, bringing headcount to around 6,200, down 11 per cent in a year. Revenue is also expected to fall again in 2026.

In his AGM statement on Thursday, Sorrell described the company as “half-way through our AI-driven turnaround, with the more significant half to come”. “We’ve got to do better,” he admitted to City AM.