Sina/Focus Media Merger Scrapped
Guest Contributor, Bill Collins, DecisionPoint Media Insights
Because of the Chinese government’s decision to reject the merger, the proposed purchase of the Digital Out-of-Home assets of Focus Media Holdings, Ltd. by Sina Corporation has been scrapped. Sina operates China’s largest web portal.
In statement released Monday, Sina CEO Charles Chao said, “The delayed consummation of the transaction has negatively impacted the business operations of both sides.”
According to the Wall Street Journal, the deal was set to expire if the Chinese Ministry of Commerce did not approve it by Wednesday, September 30.
Both Sina and Focus Media are based in Shanghai. When the deal was announced in December 2008, it was valued at USD 1.1 billion. According to Bloomberg News, Sina has posted profit declines for the past two quarters and Focus Media has reported three straight quarterly losses.
Under the terms of the proposed deal, Sina had planned to issue 47 million new shares of stock to acquire Focus Media’s network of Digital Out-of-Home screens. Focus Media’s advertising-based network is comprised of more than 120,000 flat-panel screens which can be seen in stores, office buildings and other public venues in more then 90 Chinese cities.
Bloomberg News reports that Sina’s U.S. depositary receipts have climbed 45% since the company announced its plans to buy the Digital Out-of-Home division of Focus Media.
The Wall Street Journal reports that, instead of the Sina/Focus Media merger, “a group of investors led by Sina’s chief executive will invest $180 million for about a 10% equity stake in Sina. . . . The company said it will use the new funds to finance future acquisitions and for general corporate purposes.”
The Journal further reports that “Sina’s plans to acquire Focus Media’s assets was viewed as a risky move to expand into offline advertising.”
September 30th, 2009 at 13:38 @609
That’s communism….. Many others like drunken sailors will flock to this digital shell game only to find out you really don’t get to keep what your win as the prize belongs to the ministry.
Best of Luck
J. Woolsey Jr.
October 1st, 2009 at 22:08 @964
When I wrote this article earlier in the week, I deliberately did not speculate on WHY the Chinese authorities declined to allow Sina and Focus Media to merge.
Since that time, I posted links to this article on several LinkedIn groups, asking people if they had answers to this question. Fortunately, one person who has travelled in China extensively and who knows several of the key players contacted me via E-mail. Today this person and I connected by phone.
My source’s explanation made sense. Of course, I cannot independently verify what my source told me, but anyway……
My source told me that Focus Media sought the merger with Sina because a large portion of Focus Media’s revenues come from screens placed in commercial and high-rise office buildings in the City of Shanghai that were placed in those buildings via 3-year leases. My source said that with 40 percent of Focus Media’s revenue coming from Shanghai and these 3-year leases threatened with non-renewal, Focus Media needed a merger in order to avoid a cash crunch as these leases ended.
Why, you might ask, are these leases likely not to be renewed in Shanghai? My source told me that the local government in Shanghai — either directly or indirectly — controls those leases, and that the local officials were making it clear that the leases would not be renewed. What was the hold-up, you might ask? My source speculated (again, it’s speculation) that the owners of Focus Media did not provide enough financial compensation, shall we say (some call them bribes) to local-government officials in Shanghai.
Again, this analysis does come from an anonymous source. But, I can assure you that this source is somebody who has access to key players in the Digital Out-of-Home sector in China.
Because it is no secret that, in the People’s Republic of China, media is almost 100% state-controlled, it should come as no surprise that the hand of local-government officials could play such a heavy role in the business of ostensibly private media companies like Focus Media.
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If anybody else has any insights on this question, please feel free to contact me here or E-mail me privately at bill@decisionpointmedia.com. If you wish to remain anonymous, as a responsible journalist I will respect your privacy and not publish your name or reveal it verbally to others in this industry. Thanks!
Bill Collins
bill@decisionpointmedia.com