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China's largest outdoor media group, Focus Media, yesterday said it will acquire Internet advertising service company Allyes Information Technology for US$300 million in cash and stock in an effort to forge an empire covering outdoor, indoor, mobile and Internet advertising.

 

Under the terms of the deal, which is expected to come through this month, Focus Media will pay US$70 million in cash and US$155 million in stock to Allyes.

 

Allyes, which was established in 1998, will also receive an additional payment of up to US$75 million in stock if it meets certain earnings targets from this April to March 2008.

 

Allyes's CEO David Zhu has signed an employment agreement with Focus Media and will remain in his position.

 

"This acquisition is strategically important to Focus Media. It extends our lifestyle media platform to one of the fastest-growing media segments in China - the Internet - reaching the high-end urban consumers," said Focus's CEO Jason Jiang, who was reported to have owned shares in Allyes.

 

Focus Media, which runs flat-screen TVs displaying ads in stores, offices and apartment buildings, has been expanding since last year through several acquisitions to run ads in elevators and cinemas and on outdoor electronic billboards and cellphones.

 

Wang Ran, CEO of China eCapital Corporation, said Focus Media's aggressive acquisitions stem from the company's increasing concern over its over-reliance on a single revenue source.

 

Focus Media's latest report, released on Monday, said commercial locations contributed 63 percent of the company's revenue in 2006 while revenue from in-store network, in-elevator and cellphone advertising accounted for 12.7 percent, 19.1 and 4.6 percent respectively.

 

"Focus Media has to go beyond its reliance on 'outdoor electronic billboards'," said Wang. "Focus's other revenue generators would not be able to sustain the huge company if one day the growth of China's outdoor advertising market slows down."

 

Although many applauded the high-profile deal between Focus Media and Allyes, the acquisition smashed Allyes's earlier efforts to seek an independent initial public offering in NASDAQ.

 

Experts believe the sluggish performance of Double Click in NASDAQ, with a similar business model as Allyes, and the robust performance of Focus Media triggered the deal.

 

Apart from the two parties, another beneficiary of the deal is venture capital company IDG VC, which is the major investor for both Focus Media and Allyes.

 

It was reported earlier that IDG earned $65 million from Allyes's deal with Focus Media, 40 times of what it had invested in Allyes.

 

(China Daily March 2, 2007)