Beijing— Sina Corp., China’s major internet media portal, agreed to acquire core assets of Focus Media Holding Ltd.’s digital outdoor advertising networks business at a deal that could be valued at $1.37 billion in stock, a bold attempt to seek a growth engine for its advertising revenues.
The deal announced late Monday demands Sina to purchase most of Focus Media, which has advertising spots in office buildings, malls and airports. Its network contains banks of television screens in office building lobbies and poster frames in elevators.
The agreement is a deviation from Sina’s online business, which consists of 280 million registered users, in an effort to expand its advertising business.
The deal, announced amidst concerns that China’s earlier robust advertising revenues could slow down during the global economic downturn, consolidates the country’s advertising landscape outside traditional media.
"We believe that this business combination will considerably extend our media reach and influence, reinforcing our position as a partner of choice in new-media advertising in China," CEO Charles Chao said in a statement.
The acquisition offers Shanghai-based Sina ad revenue from at least 120,000 flat-panel television screens in office buildings and public spaces in more than 90 cities. Sina derived 73 percent of its sales from online ads last quarter.
Under the pact, Sina will get control of Focus Media’s network of outdoor advertising posters and LCD screens in hotels, offices and residential buildings. Focus Media will keep Allyes, its online advertising agency business, some traditional billboards and its cinema advertising business.
The "out-of-home" ad networks Sina is buying will enable advertisers to purchase time on television screens in public places or to put their posters in frames inside elevators.
Focus Media, also situated in Shanghai, will keep its Internet ad unit, its movie theater ad network and some billboards. The all-stock acquisition has been approved by both company’s boards and should be completed in the first half of next year, the companies said today in a statement.
"We want to be a driving force for new media advertising," said Chao.
He added that Sina anticipates gaining access to an additional audience of up to 150m urban, upmarket consumers through Focus Media’s network, and hoped for cross-selling opportunities from its online platform.
China’s biggest publicly traded advertising company, Focus Media has acquired companies including CGEN Digital Media and Dotad Media Holdings Ltd. to expand into other venues such as supermarkets.
Analysts conclude that the acquisition could provide Sina with a growth driver to mitigate its market share losses to Tencent, a web portal that is drawing traffic with its messaging service QQ. However, experts are skeptical as to whether Sina would be better at realizing cross-selling opportunities than Focus Media itself.
Sina will issue 47 million shares to Focus Media Holding for its digital out-of-home advertising business, which refers to a type of advertising that reaches out to the consumers when he or she is on the move.
"In our view, Sina is assimilating a more mature asset with potentially slower long-term growth and more competition," Oppenheimer & Co analyst Jason Helfstein said in a research note.
"That said, it is hard to criticize the deal in its current form, given the attractiveness of Focus Media’s core assets," he added.
The deal represents a remarkable reversal of fortunes for the two companies. Two years ago, it was reported that Focus Media would acquire the whole Sina Company but, since the beginning of this year, Focus has struggled to raise performance of several business units, driving its share price to historical lows.
Jason Jiang, Focus Media chairman, said the company would now reconsider a planned market listing for Allyes because the unit would be Focus’s main business after the deal.
Shares of both companies dropped on fears that Sina is piling too much on top of its core business, and that Focus Media is hacking off too much in an attempt to reverse a steep stock-price slide.
Shares of Sina dropped as much as 18 percent to $24.07 in noon trade on Nasdaq from their Friday close of $29.24.
Focus Media shares came down as much as 19 percent to $8.87 after news of the deal, which turns the company’s focus to online advertising.
Helfstein said over the next 6-12 months he expects Focus Media to sell its non-online assets to create an investment with sole focus on online ad agency.