WPP threatens Sorrell's £20m payoff over Dutch agency bid

WPP Group is threatening to strip its former chief executive Sir Martin Sorrell of share awards worth potentially tens of millions of pounds over his new venture's €300m (£265m) bid to launch a rival multinational network.

Sky News can exclusively reveal that WPP (Frankfurt: A1J2BZ - news) , the FTSE-100 marketing services group that Sir Martin spent three decades building into the biggest global business of its kind, has written to him alleging that he is "likely to be in breach of his confidentiality obligations".

The row has arisen because Sir Martin's new vehicle, S4 Capital, is in talks to buy MediaMonks, a Dutch digital agency, which is also the subject of takeover interest from WPP.

In its letter to Sir Martin's lawyers, sent on Tuesday by Slaughter & May, the 'Magic Circle' law firm, WPP warned its former chief that a breach of his exit agreement would mean him forfeiting outstanding awards under the company's Restricted Stock Plan and Executive Performance Plan.

The precise value of these prospective awards - which would in any case only vest depending upon WPP's future performance - was unclear on Wednesday evening, although sources said could amount to more than £20m based on the company's current share price.

The firing of a legal salvo from WPP explodes any semblance of a truce between the company behind giant advertising names such as J Walter Thompson and Ogilvy, and the man who became the longest-serving CEO in the FTSE-100.

A source close to Sir Martin's vehicle said WPP's move was "a feeble attempt to destabilize its bid" for MediaMonks, which counts Audi (IOB: 0FG8.IL - news) and Lego among its clients.

Insiders said that S4 Capital had informed its band of investors of the legal notification from Slaughter & May on Wednesday.

An email seen by S4's institutional shareholders is understood to say that it had sought legal advice in response and believed that the allegations made by WPP's lawyers were without foundation.

The absence of a non-compete agreement in Sir Martin's final WPP contract had already touched a raw nerve among the company's investors, and threatened to become a flashpoint after he quit the company following a probe into allegations about his behaviour.

He had, nevertheless, given a series of confidentiality undertakings, which WPP now alleges he could be in breach of.

On Wednesday, S4 published documents disclosing that Sir Martin is seeking the ability to raise up to £1bn for a takeover spree that could ultimately re-establish him at the helm of a sizeable international marketing services empire.

News of the S4 and WPP offers for MediaMonks emerged less than a fortnight after Sir Martin told an audience at the Cannes Lions advertising festival that he would not be in direct competition with his former employer.

"I've referred to it being a peanut," he said.

"Although it does occur to me that some people have peanut allergies."

The size of Sir Martin's potential takeover warchest will raise expectations that S4 Capital may ultimately be regarded as a competitor to WPP.

Sir Martin left WPP following an investigation into allegations relating to the use of company funds to pay for a sex worker - which he has vociferously denied.

His ability to establish a business in direct rivalry with WPP while retaining up to £19m in unvested share options led to a limited shareholder protest against the chairman, Roberto Quarta, at last month's annual general meeting.

Sir Martin remains a significant shareholder in WPP, with much of his wealth tied up in the stock of the company he took from a manufacturer of shopping baskets in 1985 to bestriding the global advertising industry.

By the time he stepped down in April, WPP was valued by the stock market at more than £16bn.

Its shares have slipped in recent months, however, amid investor anxiety about the impact of marketing budget cuts and shifts at major global advertisers.

Ford has put its global creative business - held by WPP agencies - under review, while an executive at Unilever (NYSE: UL - news) , WPP's second-largest client, said it would watch S4 Capital's progress with interest.

Sir Martin's progress is being closely watched by the world's biggest marketing services agencies, which are being forced to adapt to a fast-changing media landscape in which Facebook (NasdaqGS: FB - news) and Google have emerged as powerful challengers to traditional advertising media.

Sir Martin has committed £40m of his own money to the new venture, with institutional investors such as Lombard Odier, Miton, Schroders (Frankfurt: 929969 - news) and Toscafund all backing the vehicle

Dowgate Capital, a stockbroker, has been working with Sir Martin on fundraising activity by S4, which is structured so that it is controlled by its executive chairman with an iron grip.

Roberto Quarta, the chairman, has named two long-serving WPP executives as joint chief operating officers while a permanent successor to Sir Martin is being recruited.

It has not made any big strategic moves since Sir Martin's exit, although it has agreed to sell equity holdings in two technology businesses.

Spokesmen for WPP‎ and S4 declined to comment.