Mark Kleinman: WPP takeover rumours, CBI secrecy and the flight of the Tories
Mark Kleinman is Sky News’ City Editor and is the man that gets the City talking in his weekly City A.M. column.
WPP is cheap but buyout looks far-fetched
A Shanghai surprise? News this week that WPP Group, the FTSE-100 marketing services group, had sacked a staff member at Group M, its global media-buying operation, in China amid a bribery investigation is a reminder of the perils of doing business in the world’s most populous nation.
Might it also, though, draw attention to the valuation travails being endured by its London-listed parent? As City bankers look enviously across the Atlantic at a slate of megadeals – the latest of which arrived on Monday with Chevron’s $53bn tilt at rival oil producer Hess – they are having to console themselves with mere morsels here.
The few potential exceptions to that could include WPP, which in recent weeks has become the subject of increasingly frenzied speculation that it is a target for American buyout firms.
The latest names to be linked through the rumour mill to WPP, which reports third-quarter results this morning, are Blackstone and Silver Lake (although both privately seek to distance themselves from such speculation). With a market capitalisation of £7.9bn, and a conventional takeover premium that could add another £2.5bn to that figure, this is not a deal that even the biggest private equity appetite would swallow alone. Add in £3.5bn of net debt at the half-year, and you’re talking about a monster take-private.
Whether debt investors in their current jittery state would even stump up for a leveraged deal of this nature – advertising’s fortunes being highly correlated to wider economic growth and sentiment – is debatable.
Nevertheless, WPP is by some measures screamingly cheap. Its shares are down by about 40 per cent since the day Sir Martin Sorrell, the company’s founder, stepped down in 2018. It trades at just 3.5 times this year’s headline earnings before interest, tax, depreciation and amortisation – less if you add in its share of the profits of Kantar Group, the research business it owns 40 per cent of (a stake probably worth in the region of £1.2bn).
Sorrell was fond of reminding anyone and everyone that he had built WPP into the world’s largest marketing services provider. Now, it trails French peer Publicis in market cap terms by a wide margin. As it hunts a new chairman to replace Roberto Quarta, WPP is probably safe from a private equity approach – for now.
CBI secrecy needs retirement plan
If a week is a long time in politics, tseven days have seemed an eternity this year for the CBI. Having veered to the brink of insolvency, it bought itself some breathing space by securing financing from a group of banks.
Nevertheless, this stay of execution does not appear to have been accompanied by an appetite for transparency at what still likes to call itself Britain’s premier business organisation.
Its sophistry over the extent of the backing for director-general Rain Newton-Smith’s mandate in June (fewer than a third of its members voted in favour of the CBI’s survival) has become its default stance.
Take the CBI pension scheme as one such example. A filing at Companies House shows that an entity called PSF Capital (CBIRBP) GP Limited was registered in mid-August.
It transpires that the trustees have been mulling a deal with a vehicle established by Edi Truell, the prominent City financier and former chairman of London’s public pension fund, to provide the scheme with a capital-backed secured guarantee.
The terms of the deal, understandably, remain confidential, but would it not have been better for the CBI to have been more open about the arrangement? Perhaps, but it refuses to comment on the agreement with PSF Capital, instead referring questions to the trustees.
Jon Bridger, the trustee chair, would only say in a written statement: “The CBI Retirement Benefits Plan is in good shape and the pension scheme’s financial position, investment strategy, employer covenant and long-term goals are kept under regular review.
“We have been monitoring the CBI’s financial position very closely over the last few months and continue to investigate all available options to secure the best outcome for our members.”
That sheds no light whatsoever on the scheme guarantee, although I understand that CBI pensioners are due to be informed about it imminently.
Frustratingly, the CBI continues to act with the defensiveness of an organisation in crisis. If it wants to project an air of confidence in which its remaining members can place their faith, a little transparency would go a long way.
Tory MP exodus is bonanza for headhunters
Think about Britain’s most intensely competitive markets and you might, reasonably, say grocery shopping, or the provision of consumer broadband services.
Here’s another where competition is really hotting up: the bunfight among Conservative MPs and former ministers to land boardroom jobs after the general election.
One City headhunter tells me he has taken calls from more than 25 Tory parliamentarians in recent months as they seek to feather their future professional nests.
Among those widely tipped to step down are the former chancellors Nadhim Zahawi and Sajid Javid, along with the former Northern Ireland secretary Brandon Lewis (although only Javid has confirmed his intention), who was appointed as an adviser to LetterOne just this week.
At this rate, there might be more corporate directorships held by the 2019 crop of Tory MPs than the party has Westminster seats after next year’s election.