Sina, Focus Media drop $1.4 bil merger

Government stalling led to collapse of deal

SHANGHAI -- Sina Corp and Focus Media Holding Ltd. said on Monday they would effectively scrap their $1.4 billion merger after months of government stonewalling over a deal that would have created China's biggest private sector media company.

At the same time, Sina, China's biggest Web portal, announced that a group led by its management team would buy about 10% of the company for $180 million, which could be used for future acquisitions and corporate purposes.

A successful merger would have been the largest among publicly-traded companies in China's media industry and would have created a diversified giant media company able to compete with the country's two state-run media titans, Beijing-based China Central Television and Shanghai Media Group.

The deal, first announced in December, would have seen Sina buy all of Focus' core outdoor advertising assets. But China's Ministry of Commerce, which had to approve the deal, repeatedly failed to consider it, saying it needed more information even as a Sept. 30 deadline set by the two sides approached.

"The delayed consummation of the transaction has negatively impacted the business operations of both sides," said Charles Chao, chief executive of Sina, in a statement.

"We have decided with Focus's management that the best course of action from here is (to) allow the current agreement deadline to expire," he said.

Shares of Sina were up 3.7%, or $1.32, at $36.57 in Nasdaq trading. Focus shares were off 2.3%, or 25 cents, at $10.78.

In a separate announcement, Sina said it agreed to issue 5.6 million ordinary shares to an investment group established and controlled by Chao and other members of senior Sina management. The new shares would be subject to a 6-month lock-up period.

Based on the sale price, the Sina management group would be buying its shares for about $32.14 per share, or about an 8.8% discount to its last close of $35.25.

"There is a very bad corporate governance issue here, because they are going to issue 10% new shares to the management at a 10% discount, I don't know how they can get around with this," said Elinor Leung, a senior analyst with CLSA Asia Pacific markets.

"When you issue new shares you should issue it to everybody," Leung said, adding that the move would be dilutive to the current shareholder base.

However, some analysts said that the removal of the uncertainty of the merger may be positive news for Sina shares.

"The news is definitely good for Sina because then Sina will not have to undergo the process of absorbing an alien business into its operations," said Edward Yu, chief executive of Analysys International, a research firm looking at China's information technology industry.

Up until last month, both Sina and Focus were adamant about their commitment to the deal, with Chao saying that walking away from it would be the last option. Chao said then that the most preferred alternative was to restructure the deal.

It is unclear why that option was dropped, and Sina and Focus could not be reached for a comment.

Sina, China's largest Internet portal company by advertising revenue, competes with Sohu.com Inc. and NetEase.com Inc.
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