WPP in talks with Alibaba and Tencent over tie-up
Advertising group considers sale of stake in Chinese-based business to tech groups
WPP’s intention to seek local partners by ceding a minority stake predates Martin Sorrell’s departure in April. Photograph: Daniel Leal-Olivas/AFP/Getty Images
The talks, first reported by Sky News, are at an early stage according to one person with knowledge of the situation. It could take several months to come to fruition – or could even fall apart.
Roberto Quarta, WPP’s chairman, and Andrew Scott, co-chief operating officer, recently held talks in China about the potential deal. If an agreement is struck, it is uncertain at this stage whether all three Chinese companies would end up participating.
WPP’s intention to seek local partners by ceding a minority stake predates Martin Sorrell’s departure in April as the advertising group’s chief executive.
Partially separating its China business – which could be worth about $2 billion – by including minority investors could help underpin its value through a separate market valuation.
The move would also help WPP’s business in China at a time of rapid growth in its advertising industry.
WPP’s China operation is already bigger than those of most of its rivals, reflecting the UK company’s early start in gaining a foothold several decades ago. J Walter Thompson, for example, had a business in China when WPP bought the American advertising group in 1987.
WPP also has a relationship with China Media Capital, through one of its board directors, Ruigang Li, founding chairman of CMC, who has been a nonexecutive director of WPP since 2012.
Biggest in China
Alibaba and Tencent are China’s two biggest companies by market value, an indication of the soaring growth of tech companies in the region. Their growth has been driven by expanding into other parts of the economy, from retail to payments to entertainment.
The mass of data collected from these activities has enabled them to target consumers with recommendations and products, turning them into sizeable advertising machines.
China’s spending on advertising leaped 20 per cent between 2015 and 2016, according to specialist publication Ad Age, with much of that growth led by Tencent and Alibaba.
Their advertising spend jumped almost 50 per cent in 2016 compared with 2015, according to Ad Age. Alibaba is expected to claim more than a third of all digital ad revenues in China this year, amounting to more than $20 billion, according to eMarketer, a digital research company.
WPP, along with global peers Publicis and Omnicom, has been struggling in recent years with a market shift from a traditional agency-based model to digital media, and from lower spending by traditional clients.
WPP’s woes have been compounded by the uncertainty caused by Mr Sorrell’s sudden departure. Its shares have lost 28 per cent of their market value since 12 months ago.
WPP declined to comment.
– Copyright The Financial Times Limited 2018