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VisionChina To Buy Shanghai Digital Media Group

2009. 15 October

Michelle Ng, Dow Jones Newswires

( VisionChina Media Inc. (VISN) plans to buy Shanghai-based Digital Media Group for US$160 million, giving the Chinese out-of-home advertising network operator increased access to the digital television networks in Chinese subway systems, including Shanghai's.

"Scale is very important in this business. After the acquisition, we have one fewer competitor. We'll be number one plus one," VisionChina Media's chief financial officer, Scott Chen, told Dow Jones Newswires.

At the end of June, VisionChina Media had 82,349 digital TV displays on mass transportation systems in 18 Chinese cities, including Beijing, Guangzhou and Shenzhen.

After the merger, VisionChina Media will be able to sell advertising on Digital Media's 35,000 digital TVs in 32 subway and other rail lines in China, including 13 lines in Shanghai and Beijing's lines 1 and 2, which serve the capital's major cultural sites and financial districts.

The deal, which will close in the first quarter of 2010 upon completion of due diligence, will be paid in cash and shares, Chen said. Digital Media will own around a 10% stake in VisionChina Media after the transaction.

Chen said the timing of the acquisition will allow VisionChina Media to capitalize on the opportunities presented by the Shanghai Expo in May 2010.

Upon completion of the deal, "we can go out as a combined sales force and sell the combined platform," he said.

Chen declined to give a forecast of how the acquisition will affect earnings next year.

VisionChina Media Chief Executive Limin Li said there may be job cuts after the merger.

"VisionChina Media has its own appraisal system and those who fail to reach those standards will be left out," he said.

VisionChina Media employs just over 500 people while Digital Media has more than 300 employees, Chen said.

According to media and technology consulting firm Analysys International, China's mobile digital TV operators had a combined revenue of CNY788 million in the first half of 2009, with VisionChina Media leading the sector with a 50.7% market share.

Second was with an 18.0% share, and third was Towona Corp. with 15.5%. Digital Media was fourth with a 9.8% share.