SINA Corporation
(SINA) said that it has dropped plans for acquiring Focus Media Holding Limited (FMCN) due to the delay in approval from China’s Ministry of Commerce regarding antitrust issues. The companies have decided not to extend the deadline of the agreement.

In order to provide more effective and integrated marketing solutions, SINA entered into a definitive agreement with Focus Media Holding Ltd. in 2008 to acquire substantially all of the assets of Focus Media’s digital out-of-home advertising networks, including LCD display network, poster frame network and in-store network.
 
SINA had said that the $1.4 billion transaction was undergoing antitrust review by the Department of Commerce in China. The companies said that the delay in receiving the approval from the antitrust authorities negatively impacted its business operations. Thus, after due consideration the decision to terminate the contract was taken jointly by both the companies. The agreement was set to expire if approval from the Chinese Ministry of Commerce was not received by September 30, 2009 — tomorrow.

The acquisition of Focus’ out-of-home advertising networks would have provided strong synergistic benefit to SINA’s online advertising platform and enhance its leading position in the media space. This merger would have been the most important merger in the media sector enabling SINA to compete against other media giants such as Beijing-based China Central Television and Shanghai Media Group. The failure to close the deal poses further risks to the company.

However, we also believe that the removal of the uncertainty regarding the closure of the Focus Media acquisition may be good news for SINA. Focus Media reported a second-quarter loss due to a fall in its Internet advertising business. Thus SINA will not have to face the risk of integrating a loss-making company.

SINA also announced that it has entered into an agreement for  private equity placement with New-Wave Investment Holding Company Limited established and controlled by SINA’s CEO, Charles Chao and other senior management. SINA will issue 5.6 million ordinary shares and raise gross proceeds of $180 million. The new shares would be subject to a 6-month lock-up period.

SINA’s management group would be buying its shares for about $32.14 per share or about 10.9% discount to its yesterday’s close price of $36.07.

Competition in the online brand advertising field in China is fierce, crowded by big players such as Sohu.com Inc. (SOHU), Shanda Interactive (SNDA), NetEase.com (NTES) and Baidu, Inc. (BIDU). We maintain a Neutral rating on SINA.
Read the full analyst report on “SINA”
Read the full analyst report on “FMCN”
Read the full analyst report on “SOHU”
Read the full analyst report on “NTES”
Read the full analyst report on “SNDA”
Read the full analyst report on “BIDU”
Zacks Investment Research