It was almost too good to be true for Focus Media Media Holding — they thought they had found a buyer for their lackluster digital out-of-home advertising networks.
Today Focus Media jointly announced with Sina Corporation, owner of the Chinese Internet portal Sina.com, that the companies have jointly reached a decision to not extend the deadline of the agreement announced on December 22, 2008, by which the company agreed to sell substantially all of the assets of Focus Media's digital out-of-home advertising networks to Sina. The agreement was set to expire if approval from the Chinese Ministry of Commerce was not received by September 30, 2009.
"Although we still believe that the acquisition of Focus' out-of-home advertising networks can provide strong synergistic effect to Sina's online advertising platform and significantly enhance Sina's leading position in the new media space, the delayed consummation of the transaction has negatively impacted the business operations of both sides. Consequently, after due consideration, we have decided with Focus' management that the best course of action from here is allow the current agreement deadline to expire," stated Charles Chao, president and CEO of Sina Corporation.
Under the agreement first announced in December 2008, Sina planned to acquire the assets under Focus Media's LCD display network, poster frame network and in-store network. The related business of the acquired assets combined accounted for approximately 52% of revenues and approximately 73% of gross profits for Focus Media for the nine months ended September 30, 2008. Sina planned to issue 47 million newly issued ordinary shares to Focus Media Holding as consideration for the acquired assets. Focus Media Holding would then distribute Sina shares to its shareholders shortly after the closing.
Jason Jiang, chairman and CEO of Focus Media, stated, "The recently launched special zone for Focus Media's advertisers on the portal of Sina has preliminarily proved the synergy our business might have with Sina. Although we will not move forward with the merger, we will continue further and more intensive strategic cooperation with Sina in the long run, to give full play to the advantages and strengthen the competitiveness both Focus Media and Sina enjoy in our respective media spaces."
Both companies need as much help as possible. Net revenue for Focus Media for the quarter ended June 30, 2009, for continuing operations, which does not include any services that were planned to be sold to Sina, was USD82.1 million, increasing 23% from USD66.7 million for the first quarter of 2009 but declining 23% from USD107.2 million for the second quarter of 2008. Net revenue for discontinued operations, which were the services planned to be sold to Sina, was USD89.2 million, a sequential increase of 39% from USD64.4 million for the first quarter of 2009 but a decline of 15% from USD104.5 million for the second quarter of 2008.
Likewise, the same quarter ended June 30, 2009, Sina.com reported total revenues of USD90.3 million, compared to USD91.3 million in the same period in 2008 and USD73.8 million for the first quarter of 2009. Advertising revenues decreased 11% year over year to USD57.8 million, while non-advertising revenues increased 23% year over year to USD32.5 million. GAAP net income decreased 41% year over year to USD13.3 million.
However, today Sina did announce a new infusion of capital. The company has entered into a definitive agreement for a private equity placement of its ordinary shares with New-Wave Investment Holding Company Limited, a British Virgin Islands company established and controlled by Charles Chao, Sina's Chief Executive Officer, and other members of Sina's management. At the closing, Sina will receive gross proceeds of USD180 million, and New-Wave will receive approximately 5.6 million ordinary shares in Sina. The closing of the financing is subject to customary conditions. The shares issued to New-Wave will be subject to a six month lock-up and will have customary registration rights pursuant to a registration rights agreement entered into between Sina and New-Wave. Sina expects to use the proceeds of the financing for future acquisitions and general corporate purposes.
"We are pleased to have entered into this significant private placement, which will enhance Sina's liquidity position and ability to execute on strategic undertakings. This management-lead investment is a vote of confidence in Sina prospects and strategy," stated Yan Wang, chairman of Sina.