WPP China in talks to sell stake to Alibaba, CMC, Tencent deal may be a post-Sorrell 'tidying up': Analyst

WPP is in preliminary talks, as first reported by Sky News, to sell a minority stake in its China business to a consortium of Alibaba, China Media Capital (CMC) and Tencent.

Campaign China understands that the topic came out during a visit to China by Roberto Quarta, WPP’s chairman, and Andrew Scott, co-chief operating officer, earlier in July. However, the discussions are understood to be at a very early stage.

Sources estimate the stake at hand to be roughly 20% of WPP China, valued at between US$2 billion and US$2.5 billion, which would reportedly be spun off into a new holding company.

WPP has set up various partnerships in the past—with Tencent to establish a social marketing lab and with Alibaba to integrate multiple audience data sources—but this deal, if passed, would position the two Chinese tech giants as equal shareholders instead of rivals fighting for adspend. CMC's founding chairman Ruigang Li has been a non-executive director of WPP since November 2012.

A WPP spokesperson declined to comment.

Keith Hunt, managing partner at Results International, an advisor on M&A and fundraising to the marketing and tech sectors, offered his take:

Sir Martin Sorrell was renowned for not wanting to sell any part of the WPP network under his tenure. What a deal in China could signal is the start of a tidying up of assets by the group’s new leadership and also taking opportunities that wouldn’t previously have been open.

The big question is, should a deal ultimately go through will it be used to repay some of WPP’s—not inconsiderable—debt, or will it free it up for other strategic transactions? Frankly, the first option is not very imaginative and what’s much more exciting is what this new group of shareholders could bring to the group and to its clients.

The Chinese market is a tough nut to crack for Western businesses. WPP certainly wouldn’t be the first large Western organisation to recognise the benefits of partnering with local players to achieve their objectives. Equally, the Chinese partners would gain a lot of knowledge on how Google and Facebook operate in the West, per their longer-term objectives it would seem highly unlikely they’d be interested in WPP’s operations outside China at the moment.

What the deal offers would be fairly unique, at least at this scale. There’s a whole raft of possibilities for any agency merging with these digital media owners: it would offer both partners the means to combine creative ideas with media opportunities in a way that competitors simply couldn’t hope to achieve at this time.

The other holdcos could not fail to see this as anything but a major threat. Tencent and Alibaba are simply huge and there aren’t any similarly sized players that they could seek to strike a deal within the Chinese market. That said, we don’t yet know if WPP would—or could—secure an exclusivity clause, even if not, the first leader advantage would be invaluable.