Focus-Target merger to create media giant in China

The marriage of China’s leading and second largest media groups, both backed by private equity firms, marks the first major private sector merger in the country.

A pending merger between Nasdaq-listed operator of out-of-home advertising network in China, Focus Media, and key mainland rival Target Media, in which The Carlyle Group is second largest shareholder, is poised to create the country’s largest outdoor advertising platform.

To date, Carlyle has invested $19.5 million (€16 million) in Target Media in two tranches since its first $14.5 million commitment in August 2004. Carlyle’s total investment gives it a 25% stake in Target Media, according to a Chinese media report.

Focus Media’s venture capital investors include Goldman Sachs & Co, 3i Group, United Capital Investment of China, Beijing-based CDH China Fund, California-based Draper Fisher Jurvetson and Softbank China Venture Capital.

Focus Media will acquire 100% of Target for $94 million in cash and $231 million in the form of its ordinary shares, equal to 77 million ordinary shares. Subject to regulatory requirements and customary closing conditions, the transaction is expected to close in the first quarter of 2006.

“By joining forces, these two leading players in out-of-home audiovisual advertising will immediately create the strongest platform in this high growth space in China. Carlyle has been actively adding value to Target Media and will continue to extend its long-term support to the combined management by remaining as a significant shareholder of the merged entity,” Wayne Tsou, managing director of The Carlyle Group and head of Carlyle Asia Venture and Growth Capital, said in a statement.

The acquisition is expected to generate cost synergies, improve cost structure for the combined entity, according to Focus. By combining both companies’ resources, Focus Media will increase the size of its commercial location network and offer advertisers the opportunity to deliver advertisements to larger and more segmented audiences. 

The completed merger will see Focus Media operating a nationwide network of over 60,000 displays and more than 30,000 commercial locations in about 75 cities in China.