Chinese Internet video company Letv.com is buying a 100% stake in Dongyang Huaer Entertainment Media Co. Ltd. for CNY900 million.
After the acquisition, Liu Hong, chief executive officer of Letv.com, will become chairman and general manager of Huaer Entertainment. Liu will control the operating planning and business direction of the company to realize its coordination with Letv. Meanwhile, Huaer Entertainment will maintain independent operation.
As a TV series production company, Huaer Entertainment is known for its sensational drama "The Legend of Zhen Huan", which reportedly brought more than 3.5 billion views for Letv's flagship video website. However, the company still has operating risks. The report revealed that in 2013 Huaer Entertainment may see a revenue decline compared with 2012. In 2011 and 2012, the company's revenue was CNY120 million and CNY230 million, respectively. During the first three quarters of 2013, its total revenue was about CNY170 million.
Disregarding the possible revenue decrease, Letv is optimistic about the result of this acquisition. Letv said that Huaer Entertainment's sales gross margin, sales net profit margin and return on equity all will be better than Letv's. The acquisition is expected to further enhance the profitability of Letv. In addition, it will help implement Letv's strategy, which integrates platforms, content, devices and applications.
On the completion of the acquisition, Letv's operating revenue for 2013 is expected to reach CNY2.49 billion, a year-on-year increase of 113.86%; while its net profit may reach CNY230 million, a year-on-year increase of 22.56%.