Focus Media Explores Split-Up

The Chinese ad firm may carve out two high-growth units.
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Focus Media

may be planning to carve out two of its higher-growth units in a public offering.

Under the heading of unleashing value, the Shanghai-based advertising giant is exploring plans to split not only its wireless advertising operation, but also its Internet advertising group from its core outdoor advertising business sometime in the first half of 2008, say observers familiar with the company's plans.

If the units are spun out and traded separately, some analysts say the wireless business could be valued around $1.7 billion, while the Internet portion could fetch between $4 billion and $6 billion. Focus Media currently has a market capitalization of $7 billion.

Speculation about the move sent shares rising $2.04, or 3.6%, to $58.54 Friday.

The company told analysts on a Nov. 19 earnings conference call that it was "considering a possible carve-out" of its wireless unit. With the venture in its early stages and seeing relatively little competition, CEO Jason Jiang said the growth rate was "potentially 100%."

Jiang said the company would go with a spinout "so the business actually can be better appreciated by the investors who are interested."

A similar rationale would apply to the Internet advertising business. Focus Media is up against Net search titans

Google

(GOOG) - Get Report

and

Baidu

(BIDU) - Get Report

but managed to post $42.5 million in third-quarter sales, a 68% sequential increase over the second quarter.

Focus Media shareholders, who stand to receive stock in the newly traded units, would likely approve the IPO move.

It is yet to be determined just where the shares would trade. Focus Media watchers say the company is debating three exchanges: Hong Kong, China or the Nasdaq. One analyst says Hong Kong is probably the leading candidate at this point.

Earlier this week, Focus Media agreed to buy advertising rival

CGEN

for $168.4 million in cash. It will pay an additional $182 million in cash and stock if the company hits financial targets over the next two years.