The backers of Sir Martin Sorrell’s new venture have ploughed in millions of pounds without seeking or receiving reasons from the adman for his mysterious exit from WPP.
The City has been awash with speculation as to why Sorrell was ousted from the firm he founded in the 1980s. But investors in his new vehicle, S4 Capital, went ahead without knowing details of his alleged misconduct, because it involved sums of money that they were told were ‘immaterial’, according to sources.
Those putting up funds for S4 Capital, which will be used as a vehicle for buying communications companies, include Lord Rothschild’s Five Arrows group, respected investment firm Schroders and hedge fund Toscafund.
The City has been awash with speculation as to why Sorrell was ousted from the firm he founded in the 1980s
News of Sorrell’s plan to build a new advertising group will pile yet more pressure on WPP chairman Roberto Quarta, who was already expected to be given a rough ride at the firm’s annual meeting in London’s South Bank this month.
Sorrell still owns a near 2 per cent stake in WPP and could attend in person to berate the board.
At least one major shareholder has told The Mail on Sunday that they were aghast Quarta has not launched an investigation into who leaked details of the firm’s probe into Sorrell to the media.
Observers believe that Quarta could leave within a year, even if he survives a shareholder vote next week.
He has been criticised for having two FTSE 100 chairmanships, the other at medical appliances group Smith & Nephew, meaning he may be too busy to focus on the problems at WPP.
The three big groups that advise institutional shareholders on how to vote have all raised warning flags over Quarta ahead of the June 13 meeting.
Advisers Glass Lewis and Pirc told investors to reject Quarta’s reappointment. However, investors may be reluctant to vote him out. Rival advisory group ISS expressed concern, but said that shareholders should not push him off the board as this might create ‘further disruption’.
At what is shaping up to be a stormy meeting, WPP also faces a revolt over its pay report, which Glass Lewis and Pirc have told investors to vote down. The Investment Association, which represents top fund managers, has put an amber warning on the report.
Sorrell will receive share awards of up to £20 million over the next few years because he was a ‘good leaver’. He has already raked in more than £200 million over the past five years, sparking a series of protests by shareholders.
It is understood that he was allowed to leave on these terms as the allegations against him were not bad enough to count as gross misconduct.
Therefore, if the board hadn’t honoured his contract, he would have had a good chance of successfully suing WPP and winning large damages.
On Wednesday, just six weeks after his sudden departure, the 73-year-old revealed that he had taken control of stock market-listed Derriston Capital, which he is using to create S4.
He currently owns 75 per cent of the group after investing £40 million of his own money.
City investors have so far put in £11 million, but say they are willing to pump in £150 million in principle.
Frontrunners to take over from Sorrell at WPP are Mark Read, chief executive of its digital agency Wunderman, and Andrew Scott, the company’s chief operating officer. It is understood that under a longstanding succession plan, the pair had already been anointed to replace Sorrell.