Shareholders in WPP will get a GBP1 billion (AUD1.79 billion) bonus as the global holding company sells a 60% stake in its data management unit Kantar.
The sale to Bain Capital Private Equity unlocks GBP2.5 billion (AUD4.48 billion), with most of the cash, about GBP1.5 billion, going to paying down debt. At the last quarterly trading update, WPP had net debt of GBP4.163 billion (AUD7.45 billion).
The sale continues the process of streamlining the empire built by Sir Martin Sorrell, who ended 33 years as founder of the world’s largest advertising and PR group in April 2018.
The new CEO, Mark Read, has been selling off subsidiaries since he took over in September last year, putting most of the cash gained into cutting debt.
The advertising industry is grappling with economic headwinds and rapid digital transformation, including platforms such as Google and Facebook, and rising competition from professional services firms such as Accenture. .
WPP hasn’t yet decided what form the bonus to shareholders will take, whether as a special dividend or as a share buy-back program.
The Australian arm, ASX-listed WPP AUNZ, expects to realise about $150 million from the Bain sale. WPP AUNZ owns the Australian business of Kantar.
The deal aims to “develop Kantar into the world’s leading data insights and consulting company” benefiting from combined expertise, revenue and client base of WPP and Bain Capital.
For WPP, the sale to Bain supports the strategy of delivering data-driven solutions through data usage, not data ownership. WPP also maintains its access to Kantar data.
Read says Kantar is a great business and is looking forward to working with Bain to unlock its full potential.
“As a strategic partner and shareholder in Kantar, WPP will continue to benefit from its future growth while our clients continue to benefit from its services and capabilities,” he says.
“This transaction creates value for WPP shareholders and further simplifies our company.
“With a much stronger balance sheet and a return of approximately 8% of our current market value to shareholders planned, we are making good progress with our transformation.”
WPP, under the deal with Bain, will have the right to appoint two of eight directors to the Kantar board.
In 2018, Kantar’s revenue was GBP2 billion (AUD3.58 billion) and EBITDA (earnings before interest, tax, depreciation and amortisation) of GBP386 million (AUD691 million).
Eric Salama, CEO of Kantar, says the new ownership structure presents a great opportunity.
“In Bain Capital we have a partner who shares our ambition, brings relevant expertise and – with WPP – can help us accelerate our growth and impact for clients,” he says.
“We are focused on delivering ‘human understanding at scale and speed’ and the ‘best of Kantar’ more consistently. We will do so by investing more in talent and by becoming a more technology-driven solutions provider.”
Analysts at investment bank Liberum see the Kantar deal as a positive for WPP, which they say has a collection of very attractive assets.
Liberum has a Buy rating for WPP.
“Fundamentally, we do not believe the agency model is broken, more that WPP has to readjust itself to the changes that have occurred and reduce its reliance on the traditional media business to drive profits,” the analysts write in a note to clients.
Kantar has 28,000 employees globally.
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