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SCMP Reporter

AOL insists the sale demonstrates a commitment to the mainland market

AOL Time Warner has sold a controlling stake in Chinese Entertainment Television Broadcast (CETV) to Tom.com for stock worth HK$53.23 million, less than two years after the struggling channel secured coveted landing rights in Guangdong province.

As part of the deal, Tom.com will also inject up to US$30 million over 30 months to finance CETV's operations.

Tom.com will issue AOL 21 million shares at HK$2.535 each to acquire 44 per cent of CETV's stock. Yesterday, the counter closed up 4.25 per cent at $2.45.

According to sources close to the deal, Tom.com had previously acquired 20 per cent of the company from minority shareholders Robert Chua and Lark International Holdings, giving it a total holding of 64 per cent. AOL, which originally held 80 per cent of the company, will retain a 36 per cent stake.

AOL insisted that its volte-face was evidence of its commitment to the China market, citing a call option that allows subsidiary Turner Broadcasting Systems Asia Pacific to buy back the stake at either market value or Tom.com's original investment cost plus a 50 per cent internal rate of return, whichever was higher.

'It is to show we are committed to the China market,' said Steve Marcopoto, president and managing director of TBS Asia Pacific. 'We are a long-term player in China and we are happy about our position right now. Our relationship with Tom is not short-term.  We're just married and now we are going to enjoy our honeymoon.'

Tom.com, which is listed on the Growth Enterprise Market  and backed by Li Ka-shing, will take control of all management operations including business development, programme production, advertising sales and marketing.

Tom.com chief executive Sing Wang said that in addition to a management revamp, there would be cost-cutting measures and a re-launch next year featuring local and foreign content.

'CETV is Tom's first TV broadcasting operation in our media portfolio. For sure there will be additional acquisitions and transactions in the future when there is attractive and fair market value,' Mr Sing said.

He said  the transaction had been approved and supported by the mainland authorities.

Vivek Couto, an executive director of research firm Media Partners Asia, said: 'It is a great deal for Tom.com. They are to get landing rights [in China]. They will get everything they want.'

One Hong Kong-based media analyst described it as 'a classic distressed-asset deal'.

CETV is one of only four overseas channels with landing rights in southern China and hotels and other specified venues nationwide. Due to lack of localised content, it is bleeding red ink and has captured less than 2 per cent of the market.

CETV reported revenues of only US$450,000 last year and a $17 million loss before interest, tax, depreciation and amortisation.

According to Nielsen Media Research, CETV had an average audience of just 10,000 last month,  compared to 135,000 for News Corp's Xingkong Weishi channel.

'[The transaction] is a public admission by AOL Time Warner that they do not have a viable business model to compete in the China market,' said Peter Schloss, managing director of Hong Kong fund Mediavest. 'You need to localise content and people.'



Tom.com takes control of CETV in $53m stock deal