News Analysis

Who will steer Huntsworth out of stormy waters and can it survive intact?

The future of Huntsworth has become a subject of speculation following the sudden departure of its chairman Lord Myners, together with the expected retirement of its chief executive Lord Chadlington and a gloomy financial performance.

by Ian Griggs / October 21, 2014

Peter Chadlington: chief executive, but for how long?

Myners suddenly stepped down on 9 October, citing "time commitments", after an eventful six-month stint that included the August announcement that the group's founder Lord Chadlington would be retiring and Myners would lead the search for his successor.

Reports suggest that Chadlington, who was due to remain in post until his successor was chosen, got more closely involved in this process than Myners, who was working with the top recruitment firm Korn Ferry, was happy with, even going as far as to sit in on an interview Myners had arranged with a potential candidate.

Myners' departure leaves the Huntsworth board somewhat rudderless, unless you include the embattled Chadlington, but with some intriguing dynamics.

Speculation as to the future of Huntsworth, and whether it will continue as a single entity or its component parts – Grayling, Citigate, Red and Huntsworth Health – could be sold off, inevitably centres around two major shareholders.

The larger is Chinese marketing services group BlueFocus, led by CEO Oscar Zhao, which acquired its 19.6 per cent stake in 2013 as part of a strategic alliance that Chadlington had long pursued as a way into the Asian market.

However, Huntsworth is yet to make its mark in the East with just six per cent of revenues coming from Asia, the Middle East & Africa. Its heavily Western profile could make it attractive to BlueFocus, which last year acquired We Are Social.

The other major shareholder with nine per cent is Terence Graunke and his private equity firm Lake Capital, which has just pulled off the near-£100m acquisition of Engine, a more broadly-based marketing services group than the PR specialist Huntsworth.

Both Graunke and Zhao are directors on Huntsworth’s board, meaning they would have to resign their positions in order to make a formal bid.

When bidding for a private company, a bidder can ask to look at the books in fine detail before making a final decision but with a public company, such as Huntsworth, bidders must rely on published information and cannot carry out the same degree of due diligence, making this a far riskier option.

This, arguably, puts Graunke and Zhao in a far stronger position than rival external bidders because they could make a more informed choice about whether to throw their respective hats into the ring.

When internal bidders are mentioned, sources point to Graunke as someone who is interested in acquiring all or part of Huntsworth, although he is thought to have reservations as to whether the Grayling arm of the operation can be turned around to become more profitable.

Huntsworth has had a miserable year so far, in financial terms, with the share price sliding by nearly 40 per cent since January to 44 pence and a profit warning issued in July.

Interim results published in August showed revenue falls at Grayling, Citigate and Red, offset by growth at Huntsworth Health, while the group's operating margin dropped from 11.4 to 9.5 per cent year-on-year.

Another profit warning could be on the cards before the year is out and, even if not, second half-year profits are unlikely to be a ray of sunshine.

Sources point out that if Huntsworth struggled to meet its first half-year profits, the task of reaching its targets for the second half of the year will be a major undertaking.

But it would be good news for a bidder of the likes of Graunke or Zhao with their fingers on the pulse; who could be ready to make an offer based on a further reduced share price.

Meanwhile, giants such as WPP and Publicis Groupe, or the private equity players which are increasingly focusing on the PR sector could be waiting in the wings for the moment the company comes ‘into play’ in order to make their own move.

If Huntsworth is to continue as a single entity, Chadlington could now be in a position where he feels forced to shore up his personal support from the leaders of the component businesses and then, perhaps, stay on long enough to steer the ship into calmer waters.

He was unavailable to talk about the situation, as was Graunke, while Myners could not be reached for comment.