China's largest portal website Sina Corp (Nasdaq: Sina) announced on December 22 that it would acquire Focus Media's outdoor digital advertising business in a deal that may exceed US$1.3 billion. The company will issue 47 million new shares to Focus Media to fund the deal, which, calculated by its closing quotation of US$29.24 on December 19, would be worth US$1.37 billion.
2007 financial results show that Focus Media registered annual revenues of US$500 million, while Sina's total sales reached US$246 million. The expanded Sina will become the second largest advertising group in the country, with China Central Television (CCTV) claiming the top place. The outdoor digital advertising business represents about half of Focus Media's value by revenues.
Focus Media is China's largest publicly-traded advertising company, running an advertising network in locations such as elevators, office buildings, supermarkets and cinemas. At the end of September the company's LCD and poster frames numbered 120,000, and its spread in this medium is a de facto monopoly in around 90 cities. In the global economic slowdown the advertising giant was forecasting a tougher year in 2009, leading it to agree to hive part of its business to Sina.
Sina CEO Charles Chao previously pointed out during a telephone conference that Sina was going to rely on the services of its Focus Media acquisition in the integration of its operations, and that the two companies would operate the business jointly, while the Focus Media segment would keep most of its management. The CEO also believes the deal is fair to the shareholders of both companies.
Focus Media's CEO Jason Jing told China Business News that integrating part of his operations with Sina had been a long-term aim and that the two companies had previously been in contact on more than one occasion. According to an informed source, rumors about the purchase have been circulating since last Friday. "Jason Jing and Charles Chao, who are also personal friends, discussed the move much earlier, but the initiatives were rejected by Sina's board."
However, in a telephone interview with the newspaper, the Sina CEO clarified that the acquisition plan was "a recently developed one", and he also denied that Focus Media had been engaged in an extensive search for buyers such as Alibaba.com.
In its report, J.P. Morgan was pessimistic about the deal, expressing a view that the financial synergy brought to Sina would not compensate for the slowdown in the company's advertising sector.
Also in the telephone conference, Charles Chao expressed his confidence that the acquisition could integrate the two companies' strengths in network operations and outdoor advertising. The companies will also share their cultures once the deal officially starts. These factors would bring advantages to both sides.
On the incentives for the acquisition, the Sina CEO said: "This combination aims to integrate the two largest new media advertising platforms and to provide a more effective marketing service to our customers."
According to the two companies' Q3 financial reports, Sina's post-buyout business revenues would hit US$220 million, far ahead its traditional competitors like Sohu, Netease and Baidu, and it would become the second biggest Internet company after Tencent. Currently, the market value of Focus Media is US$1.4 billion, while Sina is valued at US$1.6 billion.
(China.org.cn by Maverick Chen, December 25, 2008)