Shandong-based China Broadband has signed an agreement to acquire Beijing's AdNet Media Technologies Company Limited for an undisclosed amount of stock, but the real value in the company seems to be off the table.

AdNet China currently operates and is licensed to operate in 29 provinces in China with servers in five data centers including Wuhan, Wenzhou, Yantai, Yunan and with a master distribution server in Tongshan. Partnering with a local advertisement agency, AdNet China provides a network for thousands of daily video advertising insertions to entertainment content traffic. The company projects a target service initiation of over 3,000 cafes during the first quarter of 2009 with a plan to triple that by the end of the year. As part of the deal, some of the executives of AdNet will be appointed as officers or directors of China Broadband at closing.

The questionable part of the deal is that because AdNet China is an advertising-based business, it must invoice all its advertisers and run all its money via its local advertising partner. In actuality, the local advertising company most likely has both legal responsibility and legal oversight through this entire network that AdNet China claims to own. Until a few years ago, advertising companies in China were only allowed to be owned by domestic Chinese entities, but after World Trade Organization regulations went into effect, foreign firms could run advertising companies in China but they need to be capitalized with many millions of dollars. Neither company has mentioned which company is their local advertising partner and how it is related to either AdNet China or China Broadband or how money is exchanged among the companies.

The company plans to provide additional information in United States Securities and Exchange Commission filings. Under the terms of the agreement, leadership of the combined corporation will remain with the acquiring entity. In its press release, China Broadband states that the combined company gains the knowledge and experience of using multimedia networks to support distributed advertisement insertion.

"The combination of China Broadband and AdNet China is a strategic move to rapidly broaden our platform of broadband and value-added services and increase our access to the several hundred millions of Internet users in China," reports Marc Urbach, President of China Broadband. "This acquisition will produce synergies that further demonstrate our ongoing commitment to offer cross-media capabilities while monetizing the tremendous market opportunity."

"AdNet China enables us to leverage our footprint coverage of internet cafe users to promote content and context-sensitive advertisements that are location-based, real-time, and content relevant-based," stated Wang Yingqi, chief operating officer of AdNet.


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