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Sina, Focus Media deal collapses — Media

SHANGHAI – Chinese portal Sina and digital out-of-home media company Focus Media will officially call off their proposed acquisition deal tomorrow if the Government does not consent to the merger before then, ending a turbulent 10-month approval process.

Sina and Focus have jointly decided not to apply for an extension if their imposed deadline for the deal, 30 September, passes, but they will look to engage in a strategic partnership that will allow the companies to benefit from each other’s operations.

According to president and CEO of Sina Corporation Charles Chao (pictured) in a statement, the deal’s collapse is fully contingent on the Government’s approval of the merger, a process that began 22 December. “The delayed consummation of the transaction has negatively impacted the business operations of both sides,” he said in a statement. “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.”

In December, Sina announced its plan to acquire Focus Media’s out-of-home assets – including the LCD display network, comprising 120,000 outdoor digital screens in more than 90 cities across China – for approximately US$1.7 billion.

Sina’s entrance into the outdoor sector would have given the firm an advantage over rivals Sohu, Baidu and Tencent. Yet in June, reports surfaced that the deal was in jeopardy. At the time, industry analysts suggested that the deal’s deterioration reflected financial hurdles – attributed to Focus’s disappointing financial quarter and the steep price tag of the acquisition – but red flags were regardless raised when the Government continued to withhold its approval.

According to Mathew McDougall, CEO and executive chairman of SinoTech Group, the Sina-Focus collapse will serve as a model for digital firms in the future that are looking to engage in similar acquisitions.

“In terms of going forward, I think the market will look to engage in M&As that really make sense, that are a lot more synergistic. This is a case of an online media player wanting to acquire an offline media company – it could have been justified through revenue but it still didn’t make sense,” he said. “You’ll see that digital players will still take up digital players in the future in China, but the failed deal doesn’t come as a surprise to anyone in the industry.”

McDougall added that companies looking to engage in acquisitions in the future will also bear the Government’s needs in mind in hopes of gaining approval: “I don’t think this is going to stop anyone from attempting a really big merger, but companies in the future needs to be more aware about what the Government wants out of the deal. The Government is embracing economic advancement, so if it’s not a monopolistic deal, it’ll approve it.”

Yet Dave Carini, analyst at Maverick China, pointed out that there are few facts on why the Government withheld its approval, and there is a possibility that Sina has used the Government’s rejection as a “veneer” masking the true reasons for the collapse.

“I’m a bit suspicious that this is Sina trying to get out of it – the Government may be the public PR statement but it may be that the real reason the deal hasn’t worked is that the two parties had trouble with each other other,” he said.

Carini added that the deal is unlikely to affect either company significantly, as both will return to their typical business routines.

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