Chapter 33 Merger and acquisition of Xicheng to unify the terminal market of stores

"There is no end to mergers and acquisitions." However, Jiang Nanchun and Focus Group's move again is still surprising. "Why does the capital market give you money for mergers and acquisitions, because the value created after mergers and acquisitions is far greater than the cost of mergers and acquisitions." In this way of thinking, Jiang Nanchun and Focus Media are never stingy.At the time when it claimed to be a digital media group in a high-profile manner and urged Focus Wireless and the Internet sector to spin off and go public, Focus quietly blocked Xicheng from Nasdaq at a price of up to more than 300 million US dollars, and then dominated the retail terminal market.

The three major businesses of outdoor media, wireless and Internet go hand in hand, continuous financing and continuous mergers and acquisitions in the capital market, Focus has been pushed to a new height and exploded with the energy of a large platform.In the field of outdoor LCD screen advertising, Xicheng is not the last battle, but it is definitely a very important battle. People say that Shanghai Xicheng Media should have been listed on NASDAQ if it hadn’t been blocked by Focus Media at the entrance of the listing.Founded in 2003, this is a leading domestic retail TV advertising operator that cooperates with large domestic retail chains such as Carrefour, B&Q, Wumart, and Lianhua Huashang. On December 10, 2007, it announced that it was acquired by Focus Media for US$168.4 million. Acquisition of all shares.According to the agreement between the two parties, within 24 months after the completion of the transaction, if Xicheng Media reaches a specific profit target, Focus will also pay a maximum of US$181.6 million in cash and stocks. 17.5 times.

In Jiang Nanchun's opinion, this successful merger and acquisition was very accidental, and it was still uncertain until the moment before the news was released.How Jiangnanchun will negotiate all the terms in the limited time in the listing history has become a practical issue.People can't help wondering why Xicheng gave up the listing and turned to Focus when the listing schedule has been scheduled? Analysys International analyst Gao Xiaohu, who has long been concerned about LCD advertisements in supermarkets, said this may be to avoid risks.Before Xicheng chose to go public, Nasdaq's Chinese concept stocks had been in a downturn. In November 2007, Xicheng planned to raise US$91.9 million through an IPO on Nasdaq. Almost at the same stage, AirMedia and VisionChina Media in the same industry completed their trip to Nasdaq for listing, but were affected by Affected by the market turmoil in the early stage, VisionChina Media’s IPO encountered a “cold current”. Its issue price was finally set at US$8, which was lower than the previous offering price range of US$9.5-11.50. The amount of funds raised was US$108 million, higher than the previously expected US$155 million. About 30% less.What's more, VisionChina Media's trend is not optimistic after its listing, hovering around the issue price for several consecutive days.On the other hand, industry insiders have revealed that during the period, the IPO plans of eight Chinese companies have been rejected by the New York Stock Exchange or Nasdaq.

For onlookers, the mergers and acquisitions carried out by Focus Media and Jiangnanchun are more often just like staged "Hollywood" dramas one after another, but in fact, whether it is Juzhong in 2006 or Xicheng in 2007, the two Home should have been the protagonist in the IPO financing press conference, but they have all turned into supporting roles in the focus acquisition battle, which undoubtedly added some drama to the merger.In the previous acquisitions of Focus, the acquisition of Xicheng is very similar to the acquisition of Juzhong in terms of the degree of difficulty, the reasons for the acquisition, and the acquisition process. "Any negotiation is difficult, and compromises and concessions must be made, but the key is that everyone should think about issues from the perspective of the future rather than their own." This is the basic principle of Jiang Nanchun's acquisition.

As early as 2005 and 2006, Focus Media had two M&A negotiations with Xicheng, but both parties failed because of the large difference in their respective value judgments at that time. "Never give up on making an acquisition that is beneficial to Focus's development direction at any suitable time and under the right conditions." Jiang Nanchun, who saw the general trend, did not stop at the pace of acquisitions until he saw the detailed and true information in Xicheng's listing prospectus. Jiangnanchun immediately started negotiations with Xicheng for the third time, this time in a race with Xicheng's listing timetable.

Like Juzhong back then, Xicheng was the only competitor of Focus in the field of TV advertising in the store, which put pressure on Focus in terms of market competition and market share, which directly led to a decrease in the profit margin of Focus store advertising.According to Focus Financial Report, in the third quarter of 2006, the gross profit margin of Focus store advertising was 36.4%, while in the same period of 2007, this figure had dropped to 17.7%.Whether to choose to fight with Xicheng, both sides will suffer; or choose to merge and acquire, turn the enemy into a friend, and seek stronger combat power. Jiang Nanchun has done this multiple-choice question once, and he will not hesitate this time.As for the share swaps involved in mergers and acquisitions, how much? ? ?It is a question that does not need to be considered, because it can be seen from the history of Focus’s mergers and acquisitions that whether it is framework, Juzhong, Focus Wireless or Allyes, they will all become beneficiaries of the sharp rise in Focus’s stock price and market value in the future through share swaps. .

"Originally we planned to raise about US$100 million in IPO, but now the conditions offered by Focus Media are basically in line with the purchase price, and we have avoided risks in this way. The consensus between us is to win-win, not vicious competition. Moreover, Focus Media stipulates that The revenue target is also consistent with Xicheng’s IPO target.” "This acquisition is very similar to the acquisition of Juzhong back then. The combined market share of the two companies is close to 100%." ​​In Jiang Nanchun's view, this price is reasonable, and the price obtained by Xicheng Media's independent listing may be higher than the current purchase price. higher.It is reported that Xicheng's store digital advertising network covers more than 60 cities across the country, and Focus's store network covers more than 100 major cities. The combination of the two will surely have a broader market prospect.

This "sudden brake" of Xicheng Media before its listing will undoubtedly be an action that will completely change the pattern of the LCD advertising market in the store.After the completion of the acquisition, Focus Media will undisputedly become the leading enterprise in China's video advertising in the store video marketing network.Calculated based on actual advertising revenue, the market share of Xicheng and Focus was 55.7% and 40.2%, respectively, and the combined market share of the two was as high as 96%. "Focus has a solid foundation in the TV advertising market in stores, and the acquisition of Xicheng Media is conducive to its overall development." Gao Xiaohu directly affirmed this acquisition.

Regarding the acquisition of Xicheng, Gao Xiaohu pointed out that in the outdoor LCD advertising market, there is a qualitative difference between a monopoly and two competitions.One of the reasons is that the market competition is too fierce, and the other reason is that the stores are too strong.The acquisition of Xicheng made the LCD advertisements in supermarkets unified by Focus. As a result, Focus can basically occupy all the market shares except Wal-Mart, so as to avoid making large price discounts to advertisers.In addition, Focus itself can gain better negotiating power with stores such as Carrefour and Yichu Lotus.In this way, the price of resources has dropped, while the price of advertising has increased, and this market has basically been revitalized.

Jiang Nanchun said that the integration of the acquisition ended the competition and would improve the company's profitability. "It turns out that the profit margin of this segment is the lowest in Focus's business, which is also caused by competition. The integration ends the competition and will result in a tripartite shareholding." Winning pattern: For advertisers, free up space to serve them better; for Xicheng, reduce the uncertainty of the future; for Focus, the gross profit margin will gradually be idealized.” Cao Zhigao, COO of Xicheng Media, said that after the cooperation, the market share of both parties will be very large, and the supermarket LCD advertising market environment will gradually improve after eliminating excessive competition. This is a win-win cooperation.Through this transaction, Focus Media will further expand the coverage of its digital advertising network in China's large supermarket chains.In fact, after the announcement of the merger, Focus Media’s share price closed at US$57.00, up 3.71%, with a market value of approximately US$7 billion.

Ji Weidong, an analyst at Morgan Stanley, also pointed out that the increasingly fierce market competition has caused the sales of the Focus Store terminal network business in the third quarter to fall by 2% year-on-year, and the gross profit rate has also dropped to 17.7%. "The acquisition of Xicheng will help alleviate the pressure faced by Focus in the retail terminal network market. In addition, by integrating Xicheng's sales team and customer base, Focus is expected to benefit from synergy and cross-selling." As for the operation of Xicheng Media after the merger, Ji Hairong, vice president of Focus Media, said that Xicheng will also retain the original relatively independent structure and management, and retain its original brand. Cooperate with customer resources, that is, form a "dual brand" operation situation in the store advertising business. "Focus ensures that there will be no layoffs, and Xicheng's management will not change." Ji Hairong emphasized that, similar to Focus Media's previous mergers and acquisitions, Xicheng Media will have greater independence and continue to operate in accordance with its original operating model. operate. Historically, the exchange prices of Frame, Juzhong, Focus Wireless and Allyes were $24, $30, $50 and $76 respectively. On the day when Focus acquired Xicheng News, Focus’s share price had reached $57 (equivalent to a stock split former $114).After the acquisition of Xicheng by Focus, it is predicted that Xicheng will contribute US$17.5 million in profits to Focus in 2008.Citigroup has raised the price target of Focus Media from $80 to $86, maintaining the company's "buy" rating.Jiang Nanchun said: "Focus has not disappointed any acquired company in history." The success of this transaction also lies in the confidence of both parties in the expectation of Focus's future development.While giving himself confidence, Jiang Nanchun also stimulated a greater appetite in the capital market. With the acquisition of Xicheng, Focus is safe in the field of stores.Since then, Focus has achieved an absolute dominant position in the three important media contact time and space of buildings, apartments and stores.