Web portal Sina looks to grow offline ads

Buys Focus Media's outdoor ad networks

Updated: Dec 22, 2008, 3:29 PM ET

BANGKOK -- In a bid to expand into non-Internet advertising, Sina Corp., operator of China's biggest Web portal, has agreed to buy Focus Media's digital outdoor ad networks in a deal valued at $1.37 billion in stock.

Sina would gain at least 120,000 flat-panel television screens in more than 90 Chinese cities and about 250 outdoor LED billboard displays in Shanghai and Beijing.

The firm will issue 47 million shares to Focus Media for its digital out-of-home ad business, a type of advertising that reaches out to the consumer when he or she is on the move.

The transaction, which is expected to close in the first half of 2009, is not subject to shareholder approval.

"In our view, Sina is absorbing a more mature asset with potentially slower long-term growth and more competition," Oppenheimer & Co. analyst Jason Helfstein said in a research note.

"That said, it is hard to criticize the deal in its current form, given the attractiveness of Focus Media's core assets," he added.

Focus Media said it would retain its Internet advertising division, the movie theater advertising network portion of its commercial location network and certain traditional billboards.

Shares of Sina tumbled as much as 18% to $24.07 in noon trade on Nasdaq from their Friday close of $29.24. Focus Media shares fell as much as 19% to $8.87 after news of the deal, which turns the company's focus to online advertising.

Focus Media, China's largest listed ad company, has seen its shares drop 81% this year, and JPMorgan Chase called it an acquisition target in a recent report.

Sina recently forecast a drop of as much as 7% in quarterly sales to $98 million, as advertising revenue fell after the end of the Beijing Olympic Games. Sina derived 73% of its sales from online advertising from the quarter ending Sept. 30 from spending by Olympic sponsor clients such as Nike and Volkswagen.

Reuters contributed to this report.