Hyundai ad arm Innocean readies IPO in push for global business (updated)

Cheil Worldwide

30/10/2014 10:54

(Updates with Innocean's advisor choice for IPO) 
    By Joyce Lee 
    SEOUL, Oct 30 (Reuters) - Innocean Worldwide Inc, the 
in-house advertising agency for Hyundai Motor Group, chose 
bankers on Thursday to manage an initial public offering that it 
hopes enables it to emerge from the shadows of the conglomerate 
and better compete for global clients.  
    Set up nine years ago to handle global advertising for 
Hyundai Motor Co  005380.KS  and its Kia Motors Corp  000270.KS  
unit, Innocean is South Korea's No.2 ad agency. An August stake 
sale to investors including the private equity arm of Morgan 
Stanley  MS.N  valued it at 1 trillion won ($956 million). 
    Like the country's biggest media agency, the Samsung Group's 
Cheil Worldwide Inc  030000.KS , Innocean has the ambition and 
necessity to expand beyond a home market that accounts for less 
than 2 percent of global ad spending, and could use the IPO to 
reposition itself as more than just another South Korean 
conglomerate ad agency, experts said.  
    "What Innocean has to do is to be seen having nothing to do 
with its history," said Richard Pinder, UK and international CEO 
of U.S.-based ad agency Crispin Porter + Bogusky, and former 
chief operating officer of French giant Publicis Groupe's 
 PUBP.PA  Publicis Worldwide. 
    "The most important thing is to be seen to be free." 
    South Korea's roughly $9 billion advertising market is 
dominated by affiliates of family-controlled conglomerates, or 
chaebol, that handle in-house business, including Cheil, 
Innocean, the LG Group's HS Ad and the Lotte Group's Daehong 
Communications Inc.  
    Innocean chose Woori Investment & Securities  005940.KS , 
Deutsche Bank  DBKGn.DE , Citigroup  C.N  and Daewoo Securities 
 006800.KS  to advise on the IPO, two sources with direct 
knowledge said. The sources declined to be identified because  
Innocean has not made an official announcement.  
    Innocean is eyeing a potential listing in 2015, a company 
spokeswoman said. 
    "The local market is saturated. Innocean plans to use the 
IPO to bolster transparency and credibility in order to become 
one of the top global agencies," she said. 
     
    MODERATE SUCCESS 
    As the respective in-house agencies for export powerhouses 
Samsung and Hyundai Motor, Cheil and Innocean built networks 
from which they have sought to develop non-group global 
business, with moderate success.  
    Domestically, Innocean lowered the portion of Hyundai 
Motor-related business to 43 percent as of 2013 from 100 percent 
in 2005, the spokeswoman said.  
    However, of Innocean's total global sales, some 70 percent 
is business from Hyundai Motor Group affiliates, analysts said. 
Its overseas clients include Turkish Airlines and U.S.-based NRG 
Energy  NRG.N .  
    "Ever since 2005, they have been aggressive. They set up a 
European hub in Frankfurt and hired pretty senior advertising 
people to run it. Some of their creative work is quite 
interesting, although ask around in Europe it is still going to 
be seen as a Korean chaebol agency," Pinder said.  
    Innocean's biggest shareholder is Chung Sung-yi, the eldest 
daughter of Hyundai Motor Group chairman Chung Mong-koo. 
    "It has a lot of outside business, unlike most other 
companies that are almost solely in-house agencies of 
conglomerates," said a person at one of Innocean's private 
equity investors, declining to be identified, citing company 
policy.  
    By comparison, Cheil Worldwide's revenue from Samsung 
affiliates is about 70 percent domestically. About 80 percent of 
Cheil's overseas sales come from Samsung Electronics Co Ltd 
 005930.KS , an exposure that has helped drag down its shares by 
more than 20 percent since the world's biggest smartphone maker 
said early this month it expected to post falling quarterly 
profits.  ID:nL3N0RX13T   
    Cheil set up its first overseas branch in 1988 and currently 
has offices in 40 countries outside Korea compared with 
Innocean's 15. 
    "Cheil and Innocean need to build up clients and references. 
Right now, foreign clients are more likely to ask 'Who?' when 
they introduce themselves," Hyundai Securities analyst Han 
Ik-hee said.  
    (1 US dollar = 1,045.6600 Korean won) 
 
 (Additional reporting by Tony Munroe; Editing by Tony Munroe 
and Stephen Coates) 
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters 
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net)) 
 
Keywords: INNOCEAN IPO/HYUNDAI MOTOR