Citi Cuts WPP to "Sell"; Sorrell Defends "Suicide Pact" on Pay; Attacks Obama on Taxes

WPP stock fell 7 percent Friday as Citigroup rated it a "sell," on the basis that 2009 may not be the bottom of the recession in advertising. The news dovetails with BNET's theory of June 20 that WPP's Q2 results won't be pretty. WPP chief Martin Sorrell reiterated as much in an interview wih the FT in which he repeated that Q2 so far has been rough:

We've no green shoots, not even yellow ones. No, what we saw was, April and May were tougher than the first quarter. I don't know what June will be like.

Sorrell used the interview to mildly criticize President Obama and to defend his pay package. Regarding Obama, he said:

Some people have said he is looking rather weak . . . No, no, I wouldn't say he's weak. The budget was redistributive, the threatened tax changes on US corporates are quite severe: this is on the taxation of overseas earnings, which would cost most major companies $1.5bn-$2bn in after-tax profits. That must have a significant impact on employment, I would have thought, in the United States.

Sorrell's idea that taxes hurt workers has a curious context. If you follow how WPP handles its taxes -- by indebting itself to the point where its taxes are reduced via deductible interest payments -- you'll notice that those extra interest expenses reduce the amount of money left over for WPP to employ people with. Is Sorrell suggesting that if corporations were given tax relief he'd take on less debt? Because Sorrell's debt-based acquisition history suggests that he'd rather use the extra cash to finance more debt. And he'd be foolish to employ more people if his revenues are falling.

Sorrell also defended his $95 million pay package, calling it a "suicide pact":

Are you really worth Â£60m? Â£60m, this is a figment of your imagination . . .

It's not really. No, it is. Because the Â£60m doesn't get paid [unless WPP] reaches a level [where for] a five- or 10-year period we'd have to have been the top performer by market capitalisation of a group of nine in our industry. I have invested $19m. This is not an options heads I win, tails you lose. This is a truly entrepreneurial scheme where you actually invest money, you keep it locked in an almost suicide pact over a five or 10-year period.

You're still a CEO of a listed company, you're not an entrepreneur. Well, I founded the group 24-25 years ago. There are 20 people involved in this scheme and this plan, and that has been pretty much the case from this incursion. We do compete in a marketplace where there are these private equity alternatives. All we're trying to do is to provide a scheme. By the way, with higher risk. As part of the scheme we can - to increase the leverage in the scheme - take options on WPP stock over time. You could lose all your money on that.

He may be technically correct, but the FT interviewer didn't point out that Sorrell's package is dependent on WPP being a "top performer," which means that he can still cash in even if WPP's stock goes down (as long as everyone else's goes down even more).

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