Jiang Nanchun's M&A Calculation: Taking Over Xinchao and Giving Up Exclusivity

On October 10, the State Administration for Market Regulation (SAMR) announced its decision to conditionally approve Focus Media's acquisition of New Focus Media's equity. While allowing the transaction to proceed, the regulator put forward a requirement directly targeting the business model: to waive relevant rights arising from existing exclusive terms for location points, and no exclusive or automatic renewal terms shall be agreed upon when signing new or renewing existing location contracts.

For Focus Media, this means it can integrate New Focus Media's media network, but needs to give up part of the contractual rights to control location points. It is not difficult to find that the scale advantage brought by this acquisition can be retained, while the exclusivity advantage is restricted.

Why can the transaction be approved while the exclusive terms must be abandoned? The answer can be found exactly in Jiang Nanchun's previous explanation of this acquisition.

At the semi-annual performance briefing of Focus Media on September 16, Jiang Nanchun said that after the transaction is completed, the company will optimize the layout of building media resources, give play to synergy through market development, customer sharing and operation management, and improve overall operating efficiency. At the same briefing, he also emphasized that the economy is cyclical, but the competition of brands for consumers' minds is long-term.

These two statements connect the two ends of Focus Media's business: advertisers hope to obtain the ability to continuously influence consumers, and Focus Media hopes to use a more complete network to meet this demand. Acquiring New Focus Media is an important step to expand coverage, integrate resources and improve efficiency.

The regulatory decision further raises a question: Do the increased profits after integration come from efficiency improvement, or from reduced choices for advertisers and property owners?

This is also the key to understanding this transaction.

What Focus Media sells to customers is not isolated advertising screens, but a media network that supports unified procurement, cross-city delivery and continuous reach of consumers.

Equipment is easy to purchase, but the network is difficult to replicate. Latecomers not only need to negotiate with each building one by one, but also bear the costs of installation, maintenance, sales and management. Only when a certain scale is accumulated can they undertake the budgets of national brands.

Therefore, there is a mutually reinforcing relationship between location points and customers: the wider the coverage, the easier it is to attract large customers; the more stable the customer revenue, the more it can support the investment in location points; a more complete network further improves service capabilities.

This advantage comes from long-term investment and has real commercial value. Focus Media's operational experience, customer relationships and sales capabilities will not disappear because of giving up exclusivity.

But the exclusive terms add another layer of protection to this network.

When high-quality buildings are locked by exclusive contracts, competitors may not have the opportunity to participate even if they are willing to offer better conditions. Automatic renewal may reduce the nodes for re-comparing quotations and services. The role of contracts thus extends from stabilizing cooperation to restricting the flow of resources.

The 2024 data adopted in the regulatory decision shows that the combined share of Focus Media and New Focus Media in the relevant market reaches 55%-60%. The decision also points out that high-quality new location points are limited, and the advantages of existing contracts and renewals reduce the turnover of location points, making it difficult for other operators to form a national service of the same level in the short term.

Under such a market structure, the value of New Focus Media cannot only be calculated based on its own revenue and share. It is also another set of delivery solutions that advertisers can compare, and another partner that property owners can choose.

After the acquisition, this independent competitive constraint will change. The quotations, customer development and location expansion that originally required two companies to decide separately may be arranged under the same control system in the future.

The synergy mentioned by Jiang Nanchun and the reduction in competition that regulators are concerned about actually stem from the same change.

For enterprises, unified decision-making may reduce redundant investment and improve resource utilization efficiency; for customers and suppliers, unified decision-making may also weaken their ability to compare, choose and negotiate between the two enterprises.

Therefore, this conditional approval cannot be understood as a denial of the value of integration. What it does is to distinguish M&A gains from different sources.

Increasing the on-screen rate, optimizing network coverage, reducing redundant management and improving customer services are the benefits that may come from efficiency improvement. Reducing customer choices, closing the entry of location points, and then relying on stronger bargaining power to increase profits will raise competition concerns.

From the combination of restrictive conditions, the regulator reserves space for the former type of benefits, and restricts the acquisition method of the latter type of benefits.

The exclusive arrangement itself is not without commercial reasons. Media companies need to invest when entering buildings, and stable cooperation helps to recover costs. But the same contractual terms may produce different effects under different market structures. After the merger of major competitors, the originally scattered exclusive arrangements are gathered under the same control system, and their impact also needs to be re-evaluated.

This decision targets the competition risk of a specific transaction, and it cannot be inferred that all exclusive contracts of elevator media are illegal.

Similarly, giving up exclusivity does not mean that Focus Media has to remove its equipment, nor does it mean that other enterprises can use its screens, data and customer resources for free. It releases space for the holders of location resources to choose other partners. Competitors still have to strive for cooperation through quotations, services and operational capabilities.

This is an arrangement about competitive opportunities. It will not immediately create another Focus Media, but it can reduce the contractual barriers faced by new competitors as they grow.

Precisely because this effect takes time, the decision also protects advertising customers: existing contracts and services need to be maintained, and transaction prices and unreasonable transaction terms are restricted. Opening up location points solves the problem of future competition, while protecting customers eases the practical risks in the integration process.

For Focus Media and investors, these conditions require recalculating the return on the acquisition.

The transaction cannot be simply valued according to the logic of "one less competitor, one more part of the profit". After giving up exclusivity, the renewal of location contracts may face new competition; the customer protection conditions require that integration cannot obtain benefits by reducing services or unreasonably changing transaction arrangements.

What ultimately needs to be proved is: whether the improvement of resource allocation, the increase of customer demand and the enhancement of operational efficiency can cover the integration cost and form sustainable returns.

This also gives more weight to the digital direction that Jiang Nanchun talked about in September. He introduced data cooperation with Internet platforms at the performance briefing, and explored interaction and advertising attribution through the "Tap Elevator Ad" function in cooperation with Alipay.

From the perspective of business logic, these attempts all point to the same question: how can Focus Media more clearly prove what additional business customers get after purchasing this network?

When the space to rely on contractual exclusivity to stabilize resources is restricted, enterprises need to rely more on effect, service and operational capabilities to stabilize cooperative relationships.

Of course, the number of interactions does not automatically equal new purchases, and sales growth cannot all be attributed to advertising. Focus Media emphasizes the long-term value of brand awareness, so it needs to further explain the connection between short-term interaction, purchase changes and long-term brand accumulation.

If this part of the capability can be established, Focus Media's advantages will be more solid: even if advertisers can choose other media, they are still willing to continue to place advertisements; even if property owners can compare other operators, they still recognize the cooperation value of Focus Media.

The enlightenment of this transaction to other enterprises is also very specific: what is purchased during M&A is not only assets and revenue, but also a set of contractual rights that can form control. And these rights may not all be retained after the transaction.

If due diligence only verifies whether the contract is valid and transferable, but does not analyze the competitive effect of exclusivity, renewal and transaction restrictions after the merger, the asset income may be overestimated. The legal and intellectual property team also needs to go beyond confirming "what is owned" to further analyze "how these rights jointly affect the market".

This work will not end when the approval is granted. The decision makes it clear that an application for lifting the restrictions can be submitted after the five-year term of the restrictive conditions expires, but the obligations must continue to be performed without approval. Corresponding requirements need to be incorporated into contract management, sales policies and continuous operation.

The decision on October 10 is an important phased result of this transaction, and it also turns the "integration for efficiency improvement" previously proposed by Jiang Nanchun into a question that needs to be answered by operating data.

Focus Media can expand its network through acquisitions. Next, it needs to prove that when property owners and advertisers have more choices, this larger network can still win business with better services and effects.

References

[1] State Administration for Market Regulation Press Release: Conditional Approval of Focus Media's Acquisition of New Focus Media's Equity https://www.samr.gov.cn/xw/zj/art/2026/art_e4f023977f3d47eb8d910a9cfa9b732d.html

[2] State Administration for Market Regulation: Anti-monopoly Review Decision on Concentration of Undertakings (Conditional) https://www.samr.gov.cn/jzxts/tzgg/ftjpz/art/2026/art_dffe5a3714b342d5a003d782f8ba91a4.html

[3] CLS: Relevant Report on Focus Media's Semi-annual Performance Briefing https://www.cls.cn/detail/2485446

This article is from the WeChat Official Account "Zhichanli" (ID: zhichanli), author: Shawn/MCP, authorized for release by 36Kr.