What the STW-WPP deal means for the local market

On Monday morning, widespread speculation that WPP would up its stake in STW was confirmed by news that it had increased its shareholding from 23.6 percent to a controlling 61 percent.

This merger sees the 70 STW-owned and part-owned companies, including Ogilvy & Mather, Ikon, JWT, Assignment Group and Designworks, pulled further into the WPP family of businesses, creating the largest marketing group across Australia and New Zealand (fun fact: “WPP stems from ‘Wire and Plastic Products’, a UK manufacturer of wire baskets, which became the ‘foundation’ company in which Sir Martin Sorrell invested following his search for a public entity through which to build a worldwide marketing services company”).

As per usual, there has been plenty of talk of “synergies” with this merger, which would see the pair of holding companies working on strategies to better integrate their businesses.

“… there’s at least $15 million per annum anticipated that’s to be released,” said STW chief executive Mike Connaghan in a statement to investors.

A release says that most of these cost benefits would be accrued through savings in corporate and admin, property rationalisation, IT and shared services functions and operating efficiencies. 

So what does that mean for the local outposts? Several sources have suggested to StopPress that this implies some backroom staff would potentially be made redundant as WPP looks to reduce the number of duplicated roles. 

At this stage, a spokesperson says it’s still too early to put a definitive number on how many jobs might be affected by the transition.

Changes of this nature are likely to only be initiated in April next year, following a shareholders’ meeting that will be accompanied by an explanatory memorandum and an independent expert’s report on the merger.

On the topic of duplication, there are a number of very similar organisations across both STW and WPP, which in turn hint at the possibility of consolidation of some of the businesses.

In speaking to several Australian journalists after the announcement, Connaghan said that the group currently had no plans to fuse any agencies but confirmed that they would be looking at the structure across the holding group. 

“I don’t think duplication of effort would be that relevant to the conversation,” he said. 

Within the STW side of the business, he says the likes of Ikon, Bohemia and [email protected] are operating and competing with each other.

“And indeed they compete openly with those GroupM agencies. And that will continue … Just last week we had two of the STW group agencies competing against each other in a pitch for a new client and that will continue.” 

StopPress approached several executives at the local agencies within STW and WPP groups, but none were willing comment on the merger.     

One source close to the businesses did, however, say that it was a good move for New Zealand businesses because it removes some of the ambiguity that existed in the previous structure and a certain schizophrenia caused by the existing ownership structure. Now everyone will be in the same boat, but Connaghan and Lukas Aviani are still in charge and the chairman remains unchanged. 

The source says the agencies that are majority owned by STW, such as Assignment Group, Designworks and Ogilvy & Mather, will presumably be in line for more changes than the agencies that are already majority owned by WPP, like JWT. 

One of the clearest examples of the ambiguities was in the Ogilvy & Mather ownership structure, which saw STW and WPP both hold a stake in the agency alongside Greg Partington.

“[The merger] evens out the shareholding there and takes any ambiguity out that did exist,” Connaghan said. “We had two thirds of Ogilvy and 49 percent of Thompsons [JWT] and 47.5 percent of [Mindshare and Maxus] etcetera so it takes all that ambiguity out and puts everybody across every single business on exactly the same footing and we think that is again a huge benefit of this transaction taking place.”

Connaghan says another advantage of the merger is that it brings together the strengths of the respective holding companies, with STW strong in advertising, digital and PR and WPP “very strong in media planning and buying and also research and insight”. 

“So balancing our portfolio of businesses with the WPP portfolio of businesses we believe really makes a much stronger group. Our clients will get the benefit from that strong local market knowledge.”

This merger came at a difficult time for STW, with its financials showing a 7.8 percent decline in profits earlier this year (leading to a 25 percent dip in the company’s share price). 

“The last couple of years we didn’t get the kind of growth that we were hoping, and last year was a tough year,” said Connaghan. “We had a couple of businesses which really let us down quite badly. But all the changes that have been made within those businesses and their back on track in we absolutely believe the 2016 will be a year of growth.”

WPP is thought to have been unimpressed with the results and it will no doubt be looking to turn this around, with a source telling StopPress that it would likely lead to changes across some of the underperforming agencies in the network.  

The source also said that STW’s decision to expand beyond Australia and New Zealand had compounded the financial troubles of the organisation, and may have been perceived as competing with WPP. 
This resonates with remarks to Mumbrella by WPP chief executive Martin Sorrell, who said that the focus for the merger would be strictly on the Australasian market, which is WPP’s fifth largest market. 

Sorrell was optimistic the consolidated entity could turn into a A$1 billion business across the region in the future. As things stand, the merged group has net sales of A$847 million.

A$153 million isn’t pocket change. But, as one source said, “WPP is a slick organisation” that has a history of acquiring marketing businesses at the right time and growing them across the world. 

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