BEIJING: Alibaba and Tencent, two giants of the Chinese tech ecosystem, and the venture fund, China Media Capital, are reportedly in talks to buy a minority stake in WPP Group’s China operations. The $2.5 billion deal – if completed – would mark a significant convergence of digital services and marketing capabilities.

The talks, attended by Roberto Quarta, WPP’s chairman, and Co-chief Operating Officer, Andrew Scott in July were first reported by Sky News. Sources were clear that the complexity of the negotiations mean that the likelihood of failure remains high.

If the consortium and WPP are able to carve out a deal, it would represent a gearing-up of the holding group’s Chinese operations, already a leader among the other global holding groups, all of which are targeting growth in the country.

Under the plans, which according to Sky’s sources were first broached while Sir Martin Sorrel was still at the company, WPP would pool its Chinese agency operations into a new holding company.

According to the FT, the move of partially separating its China business and including minority investors could help it to shore-up its value with a market valuation to WPP’s. Equally, the disparities between the fast growth in China, and slower growth in the rest of the world. Analysis of WARC's International Ad Forecast shows that with just one year's exception, China's growth since 2000 has been far stronger than the rest of the world.

Alibaba and Tencent’s power has arisen from their involvement in so many parts of the country’s internet ecosystem, alongside their own huge valuations. At times, and in some arenas, the competition between the two is fierce, as both compete in the mobile payments space.

WPP has carved out partnerships with both companies before. Campaign noted WPP’s prior relationship establishing a social marketing lab with Tencent, and integrating multiple audience data sources with Alibaba.

The holding company’s relationship to CMC goes back to the fund’s founding chairman, Ruigang Li, who has been a non-executive director of WPP since November 2012.

WPP remains, however, in a state of relative flux following reports of the company’s founder and CEO’s alleged improper use of company funds, compounded by investigations by the Wall Street Journal and the Financial Times. The company has also struggled financially, with shares having lost 28% of their market value since last year.

Sourced from Sky News, Financial Times, Campaign, Wall Street Journal, WARC; additional content by WARC Staff