China's Shanghai Media Group Merges Subsidiaries to Create Internet Giant

Shanghai Skyline H 2014

BesTV and Shanghai Oriental Pearl will form the largest Chinese online media conglomerate and eyes a Silicon Valley venture

SHANGHAI — Shanghai Media Group has announced the latest stage of a massive restructuring plan, which will see its Internet TV company, BesTV, a Chinese partner of Microsoft, merge with its Shanghai Oriental Pearl business to create a giant new Internet and TV company.

The company said the merged entity will be the largest Chinese online media conglomerate. Both businesses have been publicly traded.

Shanghai Media Group, one of the country's biggest TV companies, will have a 45.07 percent stake in the merged company, which will be called Shanghai Oriental Pearl New Media Co., according to a BesTV filing with the Shanghai Stock Exchange.

BesTV plans to raise up to $1.63 billion via a private placement of stock to acquire some other assets of SMG, the filing said.

Shanghai Oriental Pearl operates a TV tower in the city's Pudong financial district, one of the city's most distinctive landmarks.

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The move to form a giant company chimes with President Xi Jinping's plans to rationalize the state-owned media sector into a few large, powerful conglomerates.

SMG head Li Ruigang, who also helms giant state-backed private equity fund China Media Capital and is a major backer of DreamWorks Animation's Asian venture Oriental DreamWorks, was quoted in a report by magazine Caixin saying that after the restructuring, the company would invest more in digital channels, including PC and mobile Internet, and focus on both content production and channel-building.

SMG is keen to expand overseas as well. "SMG will have a series of global cooperation and exploration ventures. Our ambition is not limited to the group's restructuring but also about building a new image for Chinese media," Li said.

The aim was to launch a fund in Silicon Valley, and the group is planning to set up a base there to develop Internet technology and then adapt it to the Chinese market. He said that when the company has a possible IPO sometime in the future, it would show how the whole group fully "embraces" the Internet.

Shanghai Media Group merged with Shanghai Media & Entertainment Group, Radio and Television Shanghai in March to create the largest provincial media group in the country with more than $7 billion in assets.

"The new integrated company will get a significant boost being the sole capital and business platform for Shanghai Media Group," Huatai Securities said in a research note. "It has great growth potential to become the nation's first media empire with a market value exceeding 100 billion yuan ($16.3 billion)."

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A senior SMG executive, Ling Gang, said the combined company was aiming to be China's No. 1 Internet TV player.

The move is also good news for The Walt Disney Co, which has a partnership with the Shanghai Media Group. The two companies announced last week that their partnership would be expanded to include "television content development, film co-production, content distribution and marketing initiatives."

The first Disney theme park on the Chinese mainland is scheduled to open by the end of 2015.

"The strength of this deepening relationship with Disney and the volume and diversity of the initiatives that we are pursuing helps set the foundation of a multifaceted strategic alliance with Disney," Li said in a news release.

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