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Media Firms Link up in Friendly Takeover
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China's biggest out-of-home audio-visual advertising company, Focus Media (NASDAQ: FMCN), announced it will buy rival Target Media in a friendly takeover valued at US$325 million in cash and stock, the largest acquisition so far in China's media industry.

The acquisition is the first example of major Chinese private businesses merging to strengthen themselves in order to fight off tough foreign competition, according to people involved in the deal who were speaking at a press conference held in Shanghai yesterday.

Focus Media and Target Media, both Shanghai based, had operated the largest and the second-largest out-of-home advertising network in China using audio-visual flat-panel displays.

When the merger is finalized in the first quarter of this year, Focus Media will operate a nationwide out-of-home audio-visual advertising network of over 60,000 displays in more than 30,000 commercial locations in about 75 cities in China.

Target Media had been expected to stage an initial public offering on the US stock exchange, the NASDAQ, where Focus Media was listed last July. The company withdrew its application at the last minute "in view of the sincerity shown by Focus Media and the suggestions from its investors," said David Yu, chairman and CEO of Target Media.

"By joining forces, these two leading players will immediately create the strongest platform in this high growth area in China," said Wayne Tsou, managing director of the private equity firm, The Carlyle Group, the second largest shareholder in Target Media.

The latest available statistics show China's out-of-home advertising spending in 2004 was 11.3 billion yuan (US$1.4 billion), up almost 13 percent year-on-year. This is about a third of TV advertising spending and more than half of newspaper spending.

"In addition to the strategic benefits of combining two highly complementary organizations and product families, we believe we can create additional shareholder value through cost structure improvements and access to new growth opportunities," said Jason Jiang, chairman and CEO of Focus Media.

"The increased coverage of our network will make it possible for us to provide advertisers with more targeted advertising channels so as to further improve their returns on advertising investment."

Jiang revealed four types of advertising channels would be developed: elite venues, such as golf courses; commercial buildings; airports and hotels; and bars and pubs.

These will target China's elite, white-collar workers, business travellers and the fashion conscious.

Despite cheers from almost all sides, concern has been raised over possible monopoly practises, as Focus Media will now account for over 98 percent of the out-of-home advertising market.

China does not yet have monopoly regulations. But Huang Shengmin, professor of advertising at the Communication University of China, dismissed the concern for now, saying there was ample room for further growth in the sector, which accounts for less than 10 percent of China's total advertising spending at the moment.

The rapid growth of out-of-home advertising occurs at a time when print media advertising saw negative growth for the first time in recent history: newspaper and magazine advertising spending in 2004 dropped 5 and 16 percent, respectively, year-on-year.

Under the terms of the agreement, Focus Media will pay US$94 million in cash and US$231 million in the form of Focus Media ordinary shares.

(China Daily January 10, 2006)

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