Sina Corporation, China's leading internet news portal, is to buy the core assets of Focus Media, the country's leading digital media company, for more than $1bn in a bold attempt to seek a growth engine for its advertising revenues.
Under the deal, Sina will gain 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 deal, announced amid fears that China's previously robust advertising revenues could slow down during the global economic downturn, consolidates the country's advertising landscape outside traditional media.
"We want to be a powerhouse for new media advertising," said Charles Chao, Sina's chief executive.
He added that Sina expected to gain 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.
According to the government, China has 290m web users, giving it the world's biggest online population.
Analysts said 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, observers are sceptical as to whether Sina would be better at realising cross-selling oppor-tunities than Focus Media itself.
Since acquiring Allyes in February 2007, Focus Media had largely failed to create synergies with its advertising network based in shops and outdoors.
The deal represents a remarkable reversal of fortunes for the two companies. Two years ago, it was rumoured 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.
Sina said it would issue 47m new ordinary shares to Focus Media shareholders. At Sina's opening price of $26.37 in New York yesterday, the acquisition would be worth about $1.4bn.
The two companies said they aimed to close the deal, which is not subject to shareholder approval, in the first half of 2009.
