SINA, Focus Media deal poses risk, competitive squeeze

BEIJING, Dec 25 - Chinese Internet media firm SINA Corp's planned purchase of Focus Media Ltd's core assets for over a billion dollars of shares is a gamble for the buyer and an abrupt turnaround for the seller, analysts say.

China's advertising market had been given a huge boost by the Beijing Olympics to become the world's fourth largest at an estimated $20 billion, but competition is intensifying as corporates slash costs and the global recession deepens.

The deal, announced earlier this week and expected to close in the first half of 2009, may be the largest acquisition for a Chinese Internet company. But it did not impress the market.

The news unleashed a flurry of downgrades of SINA by analysts, who frowned on the price tag, integration risks and shift in corporate strategy.

"The reality is Focus Media didn't get a good pay-off in its strategy to build an integrated media platform for clients," said Edward Yu, president of Beijing-based researcher Analysys International.

"Investors are concerned SINA will not either," said Yu.

SINA is looking to leverage Focus Media's outdoor LCD screen advertising network in office buildings, elevators and supermarkets with its own online network.

But the ambitious plan sent shares of SINA tumbling as much as 18 percent to $24.07 in trading on Nasdaq after the deal was announced, while Focus Media shares fell 19 percent to $8.87.

"There is going to be management disruption and it will take some time to do the integration," said Dick Wei, an analyst with JPMorgan based in Hong Kong.

"Success depends on the execution," said Wei.

OUT OF FOCUS

SINA agreed to exchange 47 million of its shares for assets that accounted for 73 percent of Focus Media's gross profits in the first nine months of 2008.

The deal was valued at $1.37 billion before the announcement but is now worth $1.08 billion and falling.

Focus Media had proclaimed bold aims earlier this year to become China's largest media company, recently buying companies including CGEN Technology and Allyes Information Technology.

But local media and analysts now say its chairman, Jason Jiang, is looking to dismantle his company, which would consist of mostly Allyes, an online advertiser, if the deal was to close.

Focus Media "was talking to Google about selling Allyes to the search giant. Before that, the company was talking to Microsoft ," said James Lee, an Chinese Internet analyst with Stern Agee based in Boston, in an email.

Focus Media was also facing additional pressures from a spam advertising scandal earlier this year.

In April, Focus Media cut its earnings forecast for 2008, due to a forced change in its text messaging advertising policies after state media criticised it for selling spam advertisments.

"I think the management of focus media fears the stock may decline further next year," Analysys' Yu said.

"The spam advertising incident has damaged Focus Media's brand heavily in the market and among advertisers," said Yu.

Focus Media's shares have lost about 84 percent since the beginning of the year, double the 42 percent decline on the broader Nasdaq <.IXIC>.

(Agencies)