Bottom line: Focus Media could make a bid for Sina’s core web portal assets within the next year, following their co-investment in a fashion public relations specialist.
It’s a relatively slow time during the final dog days of summer here in Beijing, so I thought I would zoom in on an interesting new investment in a company called Bazaar Energy, which bills itself as a “fashion public relations solutions provider.” But what’s most interesting about this investment isn’t the company receiving the money, but rather the pair of companies providing the funding.
In this case it’s the pair of leading web portal Sina (Nasdaq: SINA) and outdoor media firm Focus Media (Shenzhen: 002027) that are providing the money, which appears to be quite a modest sum. This particular pairing is interesting less for the target company, and more because it brings together a pair of investors that were once intending to merge. Much has happened since that merger plan fell apart, and this new pairing raises the slim but still interesting prospect that this pair of companies might attempt to relaunch that plan.
Let’s begin by looking at the actual news, which says Focus and Sina will provide an undisclosed amount of first-round investment in Bazaar, which operates a website at be.com.cn, for anyone who wants to take a look. (Chinese article) No investment amount was given, but the amount will value Bazaar at a modest 500 million yuan ($75 million), meaning this is obviously a very small investment for Sina and Focus.
Focus’ longtime chief Jason Jiang is quoted in the story saying that companies like his, which focus on display advertising, are merging with content creators and providers of services like public relations, as part of a broader industry trend. That’s significant because it hints at a potential partnership with Sina, which is known as one of China’s leading independent news sources.
To better understand the story, we need to travel back to 2008, when Sina announced a plan to buy the core assets of Focus Media. That particular deal came when Sina was riding high as China’s leading web portal, and as Focus’ Jiang was looking to exit his business after making too many acquisitions that ultimately undermined its performance.
But then a strange thing happened, and China’s regulator failed to give its approval for the deal. At the time China had just rolled out a new anti-monopoly law, which could have been grounds for vetoing the deal. But rather than veto it outright, the regulator simply let a deadline pass without giving any decision or explanation.
My own personal interpretation at that time was that the powerful state-owned CCTV, China’s main national TV broadcaster, had lobbied against the deal over concerns it would create a powerful media giant that could threaten its own position as the country’s leading outlet for advertisers. Whatever the case, Sina and Focus announced in 2009 they were abandoning the deal, and life went on as before.
Since then, Sina’s core portal business has continued to grow, but at a snail’s pace and is danger of becoming irrelevant. Its main asset at this point is its Twitter-like Weibo (Nasdaq: WB), which is a separately listed company. Meantime, Focus’ has moved in the other direction. Jiang spent several years cleaning up the company after his earlier buying spree, and de-listed it from New York several years ago and successfully re-listed it in Shanghai.
At current valuations, Focus is now worth 112 billion yuan, or about $17 billion, while Sina is worth $7 billion. But if we take out Sina’s Weibo holdings, which are currently worth about $9 billion, the portal business’ value is negligible, perhaps worth $1-$2 billion at most. That would be quite easy for Focus to swallow, especially in China’s capital markets where it’s quite easy to raise money.
What’s more, the regulator is far more experienced now at antitrust rulings, and thus would be far more unlikely to veto such a deal, which wouldn’t have any major monopolistic implications. I would still peg the chances of such a deal relatively low, perhaps 30 percent, since there’s been no other indication that such movement is taking place. But given the history, current state of affairs and this latest Bazaar alliance, it does seem like such a deal could be a possibility in the next year.