Under the new deal, Shanghai-based Focus Media Holding Ltd. will sell Sina its nationwide network of hundreds of thousands of flat-panel displays that play video ads in places like stores and office-building elevators. Sina will also acquire related ad businesses, all of which together accounted for about 52% of Focus Media’s revenue and about 73% of its gross profit in the first nine months of the year, the two companies said Monday.
Sina said it will issue 47 million new shares to Focus Media, which will then distribute them to its shareholders. Both companies are listed on the Nasdaq Stock Market. The number of new shares is close to the roughly 56 million shares Sina had outstanding before the deal, according to Nasdaq. That means significant dilution for existing Sina shareholders.
The 47 million shares would be valued around $1.37 billion based on Sina’s closing share price of $29.24 Friday. But Sina’s shares fell sharply after the announcement Monday, trading at $25.08, off 14%. Focus Media’s shares were off 9% at $9.97.
The deal highlights the growing muscle of Internet companies in China, which today boasts the world’s largest population of Internet users by some measures. Sina and its Chinese peers remain relatively small compared to their U.S. counterparts, but they are growing quickly thanks to strong growth in online ad spending. Sina last month reported a 64% increase from a year earlier in its third quarter revenue to $105.4 million.