Tom Online adds mobile content
Tom Online will acquire Beijing-based Treasure Base, a mobile phone content provider specialising in sports, in a deal that could be worth as much as US$64.4 million.
The company also said it had not been affected by an apparent government crackdown on interactive voice response (IVR) services, in which users dial up for jokes, music and other entertainment.
On Monday, mainland portal Sina.com told United States regulators that China Mobile had suspended its IVR service, sending its American depositary receipts 8.11 per cent lower the following day.
The ADRs of Tom Online, which derived about 26.5 per cent of its second-quarter revenue from IVR, fell 18.13 per cent on Tuesday and were down a further 2.19 per cent at 11am in New York on Wednesday.
'Our IVR business is still in operation, and I don't know whether China Mobile has any intention of closing it down,' chief operating officer Xu Zhiming said.
The Hong Kong shares of Tom Online and parent Tom Group were suspended on Wednesday, pending further clarification about the acquisition. Tom Online shares fell 15.32 per cent to HK$1.05 in pre-market trade.
Sina's suspension has prompted fears that a government clampdown on short messaging services (SMS) business - prompted by consumer complaints over billing and inappropriate content - is spreading to the IVR sector.
According to industry sources, regulators are upset by aggressive promotions and marketing efforts, which have drawn the attention of the State Council.
Sina said it did not know when its IVR business - which accounted for 4 per cent of second-quarter revenue - would be restored. The company could also be forced to pay a fine.
Analysts noted the crackdown on SMS resulted from complaints from customers who continued to be billed for services that they no longer used. With IVR services, however, users must actively dial up content, so there should be fewer billing complaints.
Meanwhile, Tom Online said its acquisition of Treasure Base should help earnings in the second half.
The content provider is heavy on sports programming such as the Olympic Games, Formula One motor racing and the China Open tennis tournament.
'TV media is the most powerful media in China,' Mr Xu said.
Treasure Base, formerly called LingXun, has deals with 60 mainland television channels in 20 provinces to supply sports-related SMS.
Treasure Base earned US$3.8 million in the first half and $4.5 million between September 2002 and December last year.
Tom Online will pay between 3.5 and 4.5 times Treasure Base's earnings this year, and one to 1.75 times next year's profit, capped at US$66.4 million.
The first instalment of 150 million yuan is due after the deal is completed, with the second and final payments due after this and next year's earnings are audited.
Market watchers described the purchase price as cheap.
