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)