Ben Bold
Oct 18, 2023

‘Why now?’: analysts react to Wunderman Thompson-VMLY&R merger

VML comes into official being on 1 January 2024. Analyst reaction was mixed but largely positive.

WPP: merging two agency brands to form VML.
WPP: merging two agency brands to form VML.
When news broke yesterday that WPP was merging VMLY&R and Wunderman Thompson to create an advertising behemoth named VML, the markets reacted largely with indifference.
WPP’s share price opened yesterday (17 October) at 722.2p and closed at 725, having dipped marginally around the time the news broke.
There was a more telling response from market analysts. Responding to comments made by Jon Cook (who becomes VML's global chief executive), Barclays Capital noted the two agencies already shared 80% of respective clients, including Ford, Microsoft, Dell, Coca-Cola and Nestlé, and that no job cuts were planned post merger.
It suggested that a simplification of structure could ultimately benefit back office functions, while BNPP Exane analysts agreed it marked another important step in that direction, enabling WPP to unlock scale benefits and save money that can be reinvested into faster-growing segments.
Bank of America was less positive, suggesting things might get worse before they get better, while speculating that the surprise news signalled a challenging trading environment.
Barclays Capital
Barclays Capital analysts cited estimates that the combined entity "could make up around 20% of group revenue", adding that "further simplification should be seen as positive".
However, it also expressed some caveats. "WPP's problem right now is not consolidating the front office but the back office, including off-shoring, IT and ERP consolidation," analysts said.
"During their [Q2 2023] call, CFO Joanne Wilson confirmed that this continues to be a multi-year project lasting through the end of 2025. It remains to be seen to what extent the VML merger can help with this project."
Barclays analysts said there were question marks around what the merger meant for restructuring charges, adding that a priority for Wilson should be "weaning WPP from constant restructuring".
They also suggested that "cynics might ask: why now?", adding that VMLY&R and Wunderman Thompson had lost a "lots of accounts year-to-date", including Pfizer, Beiersdorf, Uber and Kimberly-Clark.
"It's not implausible that these losses have contributed to the idea of combining the two assets (though Jon Cook's statement that no job cuts are planned would speak against this hypothesis)."
Bank of America
Analysts at Bank of America were less welcoming of the news. "We view WPP's simplification efforts positively, but we think this one may mean things get worse before they get better," they said.
This was down to three factors, it argued. First, "given its fairly surprising nature, it likely signals ongoing challenging trading"; second that the large scale of internal mergers "can be risky and disruptive on day-to-day operations, particularly in creative"; and third, that it will "entail additional restructuring charges".
"So far, previous [mergers] have not paid dividends as WPP continues to lag industry growth. Rather, margins have deteriorated, and higher restructuring charges have depressed cash conversion and ROCE [return on capital employed].
"We note the announced merger is the largest in scope and thus also comes with higher execution risks. This could result in higher staff churn and client loss. Managing client conflicts may also prove tougher."
BNPP Exane
Expressing similar sentiment to Barclays Capital, analysis from BNPP Exane said the merger was "another important step for WPP to simplify its organisation and unlock further benefits of scale".
"The scale and reach of the newly created agency should allow to offer a wider suite of services and capabilities in a large number of markets," BNNP Exane said.
"Those initiatives go in the right direction and should help WPP simplifying its organisation and generate savings that can be reinvested to better positioned the company on visible and faster growing segments."
Campaign UK

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