CJ Acquires On*Media

Christmas came early for On*Media shareholders. CJ Group subsidiary CJ O Shopping announced Dec.24 it had closed a deal to acquire 55.2% of On*Media's shares from parent Orion and other investors for W434.5 bil./US$362 mil.

The deal values On*Media (045710) at W787 bil. At W6,669 per share, the price seems somewhat heavy and represents a 71% premium to On*Media's closing price on Dec. 23. Regulatory approval, which will include anti-competitive analysis, is expected by 1H 2010.
 
On*Media is a leading cable broadcaster in Korea with 10 programming networks including market leaders in movies (OCN), kids (Tooniverse) and action/ entertainment (Super Action). The broadcaster has been eclipsed over the past 12-18 months because of the growing popularity of CJ Media (CJM), which has 9 pay-TV content networks, including popular movie (CJV) and drama / entertainment (tvN) channels. CJ O Shopping also controls CJ Hello Vision, a leading cable MSO with 2.6 mil. pay-TV subs.

CJ Hello Vision should benefit from the deal has On*Media has ~0.5 mil. pay-TV subs through its distribution assets. A combined entity will have 3.1 mil. subs with ~0.9 mil. digital video subs and over 0.5 mil. broadband users. Ownership of CJ Hello has helped CJM maximize ratings and distribution over the past 2-3 years. 

Scale and leverage
The deal will deliver significant economies of scale as a combined group should be able to negotiate better content costs from Hollywood studios and other parties. Both CJM and On*Media currently spend more than 55-60% of their revenues on programming.

The combined group should also be able to gain a greater share of subscription revenues from cable and IPTV distribution platforms. Subscription fees from new, fast growing IPTV platforms has been the one sliver of sunshine for On*Media this year. The broadcaster has suffered as it has lost market share to CJM and come under the pressure from a significant advertising downturn.

According to MPA analysts, the combined group will generate more than W500 bil. in sales per annum and operating profits of ~W40-50 bil.,which should increase in the short-term with cost savings and synergies. The combined group will have about 30% market share in terms of viewership and over 30% of pay-TV channel sales (advertising, affiliate and other fees). MPA analysts expect the Korean ad market to experience a rebound next year, growing at ~9% after two consecutive years of decline.