Media Agency Aegis Boosts China Presence

By RUTH BENDER

U.K. media agency Aegis Group PLC Monday said it will create a joint venture with Chinese TV buying and advertising agency Charm Communications Inc. to boost its exposure to a high-growth market where it has so far lagged behind rivals.

Aegis said it will buy a 17.7% stake in Charm Communications, the largest broker for China's state broadcaster, China Central Television. Charm has gross assets of $143 million, and its clients include China Telecom Corp. and China Citic Bank Corp.

Aegis said its Vizeum unit will form a joint venture with Charm Communications called Vizeum China. Initially, Aegis will hold 40% of the joint venture but by 2024 it will own 100% as the group increases its ownership through put and call options in a deal that "significantly extends our Chinese operations and will further transform our prospects in this exciting and dynamic market," said Jerry Buhlmann, CEO of Aegis Media. Financial details weren't disclosed.

China was one of the only advertising markets to still grow in 2009, a year during which agencies suffered substantial revenue losses as clients cut back on advertising and marketing spending. China's advertising market grew 6.9% in 2009 and is expected to grow 9% in 2010, according to forecasts from Carat.

The deal was welcomed by analysts as a sound strategic move.

"The Chinese JV is a step forward for Aegis to make more headway in a market where it has comparatively underweight exposure," substantially below that of WPP Group, said Credit Suisse analyst Simon Baker. Analysts estimate that WPP makes about 6% of its revenue in China.

Aegis, whose clients include Nokia Corp., Coca Cola Co. and Adidas AG, doesn't disclose what percentage of its sales come from emerging markets.

Aegis has undertaken few acquisitions in recent months, not only because of the economic crisis, but because of significant disruption to its management that has led to questions over how well it can execute strategy.

In November 2008, Chief Executive Robert Lerwill quit and has yet to be replaced. His departure revived speculation that Vincent Bollore, the French industrialist who owns nearly 30% of Aegis and is also a controlling stockholder and chairman of French peer Havas SA, could merge the two companies--speculation Aegis said has no substance.

Aegis is currently headed by chairman and interim CEO John Napier. Aegis Media, the group's media communications network that owns media buyer Carat, signalled last year that it expects China to be the world's fastest-growing advertising market in dollar terms and the only one to grow significantly in 2010 as other markets recover slowly from the slump that has badly hurt the industry and led to thousands of job losses across the sector.

Patrick Stahle, chief executive of Aegis Media's Asian-Pacific operations, said in October that the Chinese government's subsidy programs, which included appliance and electronics rebates for consumers in the countryside, aided the speedy recovery of China's advertising market.

"Media agencies discovered in 2009 that they need more local Chinese clients to fully benefit from the strong growth on this market and I think we will see more buys of local agencies," said Kepler analyst Conor O'Shea.