Business News

Ad man Martin Sorrell makes comeback from WPP blow with tested tactic

Key Points
  • Sorrell has taken control of a shell company.
  • Investors have pledged funds to buy marketing companies.
  • Sorrell quit WPP in April after the board opened an investigation into an allegation of personal misconduct.
Sir Martin Sorrell
Olivia Michael | CNBC

Martin Sorrell is staging a comeback just six weeks after he was ousted from WPP, using the same formula as in the 1980s when he transformed a shell company into the world's biggest advertising group.

One of Britain's best known businessmen, Sorrell said he would invest £40 million ($53 million) of his own money into Derriston Capital while institutional investors have pledged £150 million to buy marketing companies.

The London-listed company will be renamed S4 Capital, a Sorrell entity, in a reverse takeover which is likely to be closely watched in an industry facing questions over whether the ad guru's model is still the best way to deliver adverts, marketing, research data and media buying in a digital world.

competes with U.S. groups Omnicom and IPG, France's Publicis and Japan's Dentsu, while thousands of small independent companies provide everything from ads for mobile phones to creative work and data analytics.

"S4 Capital is a company that aims to build a multi-national communication services business focused on growth," the 73-year-old said. "There are significant opportunities for development in technology, data and content. I look forward to making this happen."

Derriston Capital, a little-known two-year-old listed shell company, said Sorrell would become executive chairman while the deal will lead to the issue of 591,967,000 new shares.

Taking charge of a listed shell company repeats the tactic Sorrell used in the 1980s when he took a stake in Wire and Plastics Products, a maker of shopping baskets, and used it as a vehicle to buy some of the world's most famous advertising agencies such as JWT and Ogilvy & Mather.

Over 30 years he added market research groups, media buyers, and public relations firms such as Finsbury to build a company that employed 200,000 staff in 112 countries.

Worth £16 billion, WPP returned millions of pounds to shareholders, including its CEO, and dominated the industry for decades.

But in recent years it has struggled as major consumer goods groups such as Unilever trimmed spending on marketing and took some services in house, while consultancies such as Accenture have also stepped up competition.

According to Thomson Reuters data, Sorrell is the eighth biggest investor in WPP with a 1.4 percent stake.

Sorrell quit WPP just over six weeks ago after the board opened an investigation into an allegation of personal misconduct.

The company has not given any details about the allegation, and Sorrell has denied any wrongdoing. He told staff he had stepped down because the disruption was putting too much pressure on the business.