Founder Clashes With WPP Over Acquisition -- WSJ

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07/11/2018 | 08:48 am
Martin Sorrell


By Nick Kostov



This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 11, 2018).



WPP PLC said Tuesday its former Chief Executive Martin Sorrell has jeopardized his right to share awards worth around GBP20 million ($26.5 million), the latest salvo in a bitter breakup between the advertising giant and its former leader.



WPP's contention against its 73-year-old founder came on the day Mr. Sorrell announced a deal to buy Netherlands-based MediaMonks, his first acquisition since leaving WPP in April. WPP also sought the Dutch digital production agency, showing Mr. Sorrell is shaping up as a rival to his former firm.



"WPP's lawyers wrote to Sir Martin's lawyers last week pointing out the breach of Sir Martin's confidentiality undertakings in his approach to MediaMonks after his resignation from WPP," a WPP spokesman said Tuesday. "Despite subsequent protestations from Sir Martin's lawyers, we are well aware of the facts, and he has jeopardized his LTIP [long-term incentive program] entitlement."



Mr. Sorrell, who owns close to 2% of WPP, is due to receive the next payment from his deferred bonus in March. A person close to WPP said the ad giant plans to withhold the payment.



"Sir Martin strenuously denies any such allegation and is confident that the facts will do the talking," a spokesman for Mr. Sorrell said.



The dispute over MediaMonks shows how central Mr. Sorrell was to WPP's sprawling ad empire, generating clientele and cutting deals to expand the firm's reach. With Mr. Sorrell charging ahead with new ventures, WPP is now competing with the very man who investors long regarded as a guarantor of its success.



"Martin Sorrell is WPP's brand," said Brian Wieser, an analyst with Pivotal Research.



Part of the reason MediaMonks chose Mr. Sorrell was because of the executive's "experience and a business brain," MediaMonks co-founder and Chief Operating Officer Wesley ter Haar said in an interview.



In April, Mr. Sorrell resigned as chief executive of WPP after The Wall Street Journal reported that the company's board was looking into an allegation of improper personal behavior and whether Mr. Sorrell had misused company assets. Mr. Sorrell rejected the allegation "unreservedly" at that time.



Mr. Sorrell met with MediaMonks executives in mid-2017 when he was chief executive of WPP, according to people close to WPP and to Mr. Sorrell. MediaMonks subsequently shut down the conversation, saying they were going to review their position and talk again to potential suitors in about a year's time, said a person who is close to Mr. Sorrell. A MediaMonks spokeswoman said she was "not aware" of these discussions.



A period of "radio silence" ensued between Mr. Sorrell and MediaMonks until he quit WPP, according to the person close to Mr. Sorrell. A person close to WPP said the company disputes this, saying Mr. Sorrell and MediaMonks executives exchanged a flurry of emails after meeting in mid-2017.



In May, Mr. Sorrell announced plans to create a rival advertising firm, which he called S4 Capital, raising the specter that he planned to go head-to-head with the company he founded.



On July 3, WPP sent a letter to Mr. Sorrell, saying the executive began exploring an acquisition of MediaMonks last November, and that Mr. Sorrell had traveled to the Netherlands to meet with the production company's executives, according to a person familiar with the letter. As WPP's chief executive at the time, Mr. Sorrell was also able to assess MediaMonks' business, client base and future prospects, the letter said, according to the person.



Mr. Sorrell's attempts to acquire MediaMonks "amount to an unlawful diversion of a maturing business opportunity from WPP," the letter said, according to the person.



Mr. ter Haar said he wasn't aware of any meetings between Mr. Sorrell and executives from the Dutch production company before he left WPP.



Mr. ter Haar said he met Mr. Sorrell for the first time in May.



Founded in 2001, the little-known Dutch company produces videogames, films and websites for clients ranging from Adidas AG and Netflix Inc. to Aphabet Inc.'s Google.



The production firm has forecast EUR20 million ($23.5 million) in adjusted earnings before interest, tax, depreciation and amortization this year, according to one person familiar with its finances. In paying around EUR300 million, Mr. Sorrell has valued the firm at a multiple of 15 times earnings in an industry where companies usually sell for less than 10 times earnings, according to industry executives.



Mr. ter Haar said the firm hired a broker to gauge interest from potential bidders after a suitor reached out to MediaMonks in January 2018. At that point MediaMonks set out to "find a partner to really get MediaMonks to the next step."



Within weeks of Mr. Sorrell's resignation from WPP, brokers for MediaMonks reached out to gauge Mr. Sorrell's interest in buying the company.



Mr. ter Haar said he didn't seek or receive any assurances from Mr. Sorrell about the circumstances around his resignation.



"It wasn't part of our discussions," Mr. ter Haar said. "We were truly focused on the deal structure and the shared ambitions."



--Suzanne Vranica contributed to this article.



Write to Nick Kostov at [email protected]





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