Tag: CNET

Beijing: unsporting laws on M&A

Brenon Daly

The opening of the 2008 Beijing Summer Olympics today has the world’s sporting eyes on China. Of course, global dealmakers had their sights on the large (and growing) Chinese markets long before Beijing landed the Olympics. However, as my colleague Anita Cheung notes, those efforts suffered a setback last week when China passed the latest and strictest set of regulations on foreign investment and M&A in 15 years.

The new regulations give the federal government more control over direct foreign investment and take off the table virtually any acquisition of a Chinese company by a foreign firm. Chinese regulators cite national security and antitrust concerns for these recent actions. This is a distressing development for the idea of a global M&A marketplace. While other countries have certainly used regulation to block ‘sensitive’ acquisitions, few have succeeded with a blanket policy blocking essentially all deals.

In the months before these new regulations took effect, several US media and technology companies were able to ink purchases of Chinese companies. For instance, Hearst Business Media acquired ee365.cn, a technology news website for engineers, last month. Also, CNET acquired Beijing-based 55BBS.com in June, while Google picked up Chinese search engine 265.com one month before. And deals aren’t just being inked by US companies. In June, one of Australia’s largest telecommunications companies, Telstra, picked up a controlling stake in two large Chinese Internet companies, Norstar Media and Autohome/PCPop.

Rather than those transactions being models for future M&A activity in China, we would expect to see more deals break down because of politics. In other words, more deals like February’s aborted $2.2bn leveraged buyout of 3Com, which was led by Bain Capital, with minority participation by Chinese networking equipment vendor Huawei Technologies. In that proposed transaction, US regulators got all worked up over the possible threats to US national security of having partial Chinese ownership of 3Com’s TippingPoint Technologies business. The fear was that the Chinese might be able to spy on the US by using TippingPoint’s intrusion-prevention system to gain access to networks. As silly as that seems, it was enough to sink the deal. And unfortunately, China seems to have adopted that as policy.

Recent foreign deals in China

Date Acquirer Target
July 2, 2008 Hearst Business Media ee365.cn
June 27, 2008 Telstra Norstar Media; Autohome/PCPop
June 17, 2008 CNET 55bbs.com
May 26, 2008 Google 265.com

Source: The 451 M&A KnowledgeBase

The ‘new’ Old Media

-by Brenon Daly, Yulitza Peraza

With investment bank Allen & Co opening its annual conference on July 9 in Sun Valley, Idaho, we thought we’d take a look at what sort of shopping the traditional media companies, which make up most of the confab’s attendees, have been doing recently. The short answer: They’ve been busy. And a lot of the buying has been Old Media picking up New Media. (We’ve noted in the past how Allen & Co has re-tooled its business to meet the change in deal flow.)

In the first half of this year, traditional media companies have spent more on Internet content companies than during any other comparable period. Just Tuesday, for instance, Gannett picked up the chunk of ShopLocal that it didn’t already own. Additionally, NBC took a majority stake in Web content and broadcast sports provider World Championship Sports Network for an undisclosed sum last month. (This acquisition, the network’s fourth since 2006, comes just in time to help bolster its upcoming coverage of the Olympic Games in Beijing.) Also, CBS paid $1.8bn in May for CNET, one of the original online information sites. Altogether, since 2002, Old Media has put more than $13bn toward online purchases.

If anything, we expect the pace to pick up in the second half of 2008, as media companies continue to expand their digital offerings. The shopping spree, however, is a bit late because the model has been broken for a long time. It used to be that traditional media companies could run fatly profitable by simply trading their information and entertainment for your dollars, whether the payment came through subscription or advertising. That exchange worked as long as the information and entertainment could be kept closely controlled. In other words, it worked until the Internet came along.

Acquisitions of content companies by media outlets

Period Deal Volume Deal Value
Jan-June 2002 9 $424,000
Jan-June 2003 7 $106m
Jan-June 2004 3 $87m
Jan-June 2005 10 $1.11bn
Jan-June 2006 26 $1.18bn
Jan-June 2007 32 $2.07bn
Jan-June 2008 38 $2.18bn

Source: The 451 M&A KnowledgeBase