Credit: Shutterstock photoShares of premier Chinese digital media network operator AirMedia Group Inc.AMCN , tumbled 17.8% after the company announced that it has inked a definitive agreement to sell 75% of its advertising business - AM Advertising - to Beijing Longde Wenchuang Fund Management Co., Ltd., for RMB 2.1 billion ($344.4 million) in cash.
The consideration will be paid in two instalments, and is subject to certain preconditions and provisions. AirMedia is also planning to eliminate the variable-interest entity (VIE) structure for AM Advertising.
The move signifies that AirMedia's former plan to sell 5% interest in its advertising business to Shenzhen Liantronics Co., Ltd. stands terminated. The agreement, announced in early April, had valued AM Advertising at around RMB 3 billion.
The deal reflects the total valuation of AM Advertising at RMB 2.8 billion ($459.2 million), after the completion of the restructuring. AirMedia's CEO Herman Guo is of the opinion that the terms of the deal with Longde Wenchuang are more favorable relative to those of other potential buyers, specifically as all consideration will be paid in cash.
Post restructuring, AM Advertising will own and operate AirMedia's media business in airports and billboard/LED media outside airports, excluding gas station media network. Also, all AirMedia's other businesses, including digital TV-screens on airplanes, in-flight Wi-Fi business, digital TV screens on airplanes, on-train Wi-Fi business, and gas station media network will be transferred out of AM Advertising and will not form a part of the deal.
After the elimination of the VIE structure of AM Advertising, its remaining 25% equity interest will be acquired by Shenzhen AirMedia Information Technology Co., Ltd., a wholly owned subsidiary of the company in China.
AirMedia may employ the proceeds from the stake sale towards dividend payments, and to boost its fast-growing new in-flight and on-train Wi-Fi services business.
The sale is a part of the marketing services firm's efforts to transform itself into a dominant in-flight and on-train Wi-Fi operator in China. Chinese investors have been favouring media companies of late, and the restructuring will help position the company favourably among shareholders.
The leading operator of out-of-home advertising platforms in China targets mid-to-high-end consumers. It operates China's largest digital media network that caters to air travel advertising and sells advertisements on the routes operated by seven airlines, including four of the nation's largest airlines.
AirMedia presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader consumer discretionary sector include Coupons.com Incorporated COUP , Culp, Inc., Isle of Capri Casinos, Inc. ISLE and American Eagle Outfitters, Inc. AEO , each sporting a Zacks Rank #1 (Strong Buy).
Note: $1 = RMB 6.0984
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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