Expectations are high for French ad giant Publicis Groupe’s rumored purchase of a controlling stake in Cheil Worldwide, Samsung Group’s advertising agency.
According to news reports and industry sources Monday, Publicis, one of the world’s top three ad companies, is considering acquiring a 30-percent stake in Cheil, which has a market value of $1.9 billion.
Publicis and Cheil have not yet released respective official statements about the reports, but industry watchers see their partnership as very likely, calling it a “win-win” deal.
“Both companies have growth limitations for now,” said Han Seung-ho, an analyst at Shinyoung Securities.
“Publicis is desperate to enter emerging markets, especially China, while Cheil seeks to secure more global clients other than Samsung Electronics.”
Publicis has almost no presence in China, a soaring digital ad market where smartphone filtration is growing quickly. In the meantime, Cheil sees about 50 percent of its profits in China, largely driven by the robust growth of its local unit Pengtai.
Other than expectations in China, their partnership also aims to further strengthen ties with crucial client Samsung Electronics, according to Moon Ji-hyun, an analyst at KDB Daewoo Securities.
“Maintaining orders from Samsung Electronics is expected to be the most important factor for Publicis to go ahead with the stake deal,” she said.
In a regulatory filing, Samsung said it spent 2.73 trillion won ($2.25 billion) on advertising globally in the nine months through September 2015. The company didn’t specify the breakdown of ad agencies.
With several agencies competing, Publicis handles some of the Korean tech giant’s marketing activities in the U.S. and Europe, while Cheil focuses on Korea and other Asian markets.
Cheil is also keen to show its competitiveness to its sister firm and client Samsung, sources said.
Despite its market leader position on its home turf, Cheil has yet to secure a firm footing in advanced markets such as the U.S. and Europe, with its overseas profits largely depending on Samsung.
“Samsung now sees less benefit from working with Cheil, especially in global markets. Partnering with top ad firms like Publicis would offer Cheil more negotiating power in future talks with Samsung,” said a source who declined to be named.
Since the initial reports about the Publicis offer last week, Cheil shares have continued to rise, ending at 20,750 won Monday. KDB Daewoo’s Min estimated the shares could surge to 30,000 won within the next 12 months.
By Lee Ji-yoon (firstname.lastname@example.org