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Hedge Funds Short a Billion Pounds Worth of WPP Shares

26-June-2018
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Hedge Funds Short a Billion Pounds Worth of WPP Shares

As per international reports, a percentage of WPP shares on loan has risen close to 6% of its share capital in that time according to an analysis by IHS Markit, with the number of WPP shares on loan rising just as the wider FTSE100 experiences a decline in such trades.

The Times reports that this process of ‘shorting’ or 'short selling’ has investors borrowing shares for a fee and selling them with the intention of subsequently buying them back more cheaply at a later date and handing the shares back to their original owner.

International media reports estimate that there are now around 81 million WPP shares on loan, equivalent to around £1 billion based on its current share price, with Marshall Wace and Old Mutual Global Investors amongst those actively shorting the ad giant.

WPP 's market value was slashed by £5.6 billion over the past year, after the exit of Sir Martin Sorrell; adding to that, a wider drop in advertising and increased competition from the likes of Google and Facebook. However, organic net sales slipped only 0.1 percent — compared with a 1 to 1.5 percent drop that analysts had forecast after Sorrell's exit. It was also speculated that WPP could sell its market research arm Kantar instead of heading for a complete break-up of the company built by Sorrell, now valued at around £15 billion.

WPP's new co-Chief Operating Officer, Mark Read has a more positive outlook, saying he had spoken to the group’s top 20 clients since Sorrell’s departure and had been reassured that they were not looking to abandon the company.

Wavemaker, WPP's media agency has recently been appointed as the media agency of record in Canada for Yum! Brands, the food conglomerate which comprises of KFC, Pizza Hut and Taco Bell, following a review which included incumbent Mediacom. The account is said to be worth about $50 million.

With Sorrell now forming a new global communications firm called S4 Capital with heavy backing from institutional investors, WPP is under pressure. Just last week at Cannes Lions, Sorrell, in conversation with author Ken Auletta, said the need for him to start a new company stems from client demand.

“I say it on the basis from what I hear from clients. For example, if you and I were starting a company, you listen to the most prominent CMOs that you’ve mentioned in your book, Mark Pritchard of Procter and Gamble, or Keith Weed of Unilever and you listen carefully to what they say, and what the people who work with them say. They want agencies which are much more flexible, faster, cheaper; agencies who are more global, local, who can relocate with them and agencies that can deal with local clients, as well as the millennial influencers,” said Sorrell.

When asked that with all the knowledge and experience that he has, if he is now starting his new company called S4 Capital to take on WPP, Sorrell called his new company a ‘peanut’ in comparison to WPP.

He quickly added, “S4 Capital of which I am Executive Chairman, is a peanut in comparison, but I do have to admit that some people have peanut allergies."

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