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Online media firm acquires backers

FOCUS Media, China's leading digital media group, has offered investors a ray of opportunity amid the global advertising slump after the company formed an alliance with a Chinese online firm and acquired one of the nation's biggest conglomerates as its largest stakeholder.

Fosun International, the holding company of Shanghai-based Fosun High Technology Co Ltd, said that it had acquired more than 33 million shares of Nasdaq-listed Focus Media by February 19th, 26.14 percent of the issued share capital.

"Fosun International took advantage of a great opportunity because Focus shares were undervalued after its share price fell more than 76 percent since the third quarter of last year," said Zhou Hongmei, an analyst with Beijing-based China IntelliConsulting.

Focus Media agreed last year to sell its outdoor advertising operations to Nasdaq-listed Sina Corp in an all-share transaction valued at US$1.8 billion. Sina is one of China's highest-profile Websites, with more than 280 million users worldwide.

Because of the share swap, the Fosun investment in Focus Media makes it the largest shareholder in both companies, including an 11.9 percent stake in Sina.

Fosun, with interests in pharmaceuticals, property and steel, said its that investment will be passive.

Founded in 2003, Focus Media targets up-market urban consumers through an array of advertising platforms, including outdoor light-emitting diode (LED) networks, mobile handsets, in-store networks and poster-frame systems.

"We were surprised to learn that Fosun had increased its stake, but we don't believe it will have any substantial effect on our core business since Fosun is only a strategic investor," said Jason Jiang, chairman of Focus Media.

Regarding the alliance with Sina, Jiang said that the sale of its outdoor advertising operations "will put both of us in a better position."

Focus shares have dropped 4.4 percent since January 30. They last traded at US$7.17 a share.

"We think the share price for Focus is within reason, and we're optimistic about the outdoor and online advertising industry," Sun Jun, a spokesman for Fosun International told Shanghai Daily. He said reports about Fosun intending to take a management role are "groundless."

Focus is apparently trying to brace itself amid an economic storm that has cut deeply into advertising budgets at companies across the world.

"Focus's share price dropped more than 80 percent in 2008 as a result of the shrinking global economy," Zhou said. "Sina's alliance with Focus gives both companies a wider range of assets and adds value to the shares of each."

He is apparently not the only one taking that view. The financial newspaper Barron's said in late January that Focus Media shares may be worth almost twice their current value because investors were underestimating its assets, which include an Internet advertising unit and a movie theater advertising network.

Sina Chief Executive Officer Charles Chao said he's confident that new media will take a larger portion of the advertising market share in the future.

He told Reuters in an interview in Davos, Switzerland, in January that the alliance with Focus Media gives Sina a "predominant market share." He also said that the Chinese government's stimulus measures would help advertisers boost their spending.

Sina's shares have lost 8.98 percent since the start of the year.

CTR Market Research, a domestic research firm, said in a recent report that television still retains the leading position for advertisers, accounting for 76 percent of industry spending in China in 2008.

Advertising spending in the domestic market rose 15 percent last year to 441.3 billion yuan (US$64.5 billion) in 2008, while online advertising, not including search engine keywords, surged 55 percent to 11.9 billion yuan.

"There have been a lot of ups and downs in the advertising industry," said Tian Tao, vice president of CTR Market Research. "The financial, real estate and auto sectors are very likely to cut their marketing spending because they are most exposed to global economic trends."

Still, many people remain upbeat about the online advertising industry. Growth in the market, including search engine ads, is forecast to drop to 20 percent from more than 70 percent in 2008, yet the sector remains attractive even at a slower pace, according to a report by iResearch Inc.

In a survey of more than 300 industry officials, iResearch found that 60 percent believed the online ad market will shrink but not to any great extent. About 57 percent of respondents said the cost-effectiveness of online marketing gives it an edge over traditional media.


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