RHM.L Regulatory News (RHM)

19 Dec 2008 07:00



RedHot Media International Limited

('RedHot', 'RHM' or the 'Company')

Acquisition of In Motion Media & Clarification Regarding the Acquisition of AllChina

19 December 2008

The Directors of RedHot Media International Limited are pleased to announce the acquisition of In Motion Media ("IMM"), a multi-platform media and advertising business based in Hong Kong and Shanghai, People's Republic of China ("China") (the "Acquisition"). 

IMM consists of the assets and business of In Motion Media & Ad Company Limited, a limited company incorporated in Hong Kong, and In Motion Media & Ad Shanghai Limited, a limited company incorporated in China. The Company is not purchasing the share capital of either company.

The consideration for the Acquisition shall be the equivalent to 120% of the audited post-tax profit of IMM for 2008, 2009, 2010 and 2011, subject to a cap of RMB1.5m, RMB5.0m, RMB11.5m and RMB12.0m respectively. This consideration is payable two-thirds in cash and one-third in ordinary shares of US$0.10 each ("Ordinary Shares") in the Company. The number of Ordinary Shares issued as consideration will be calculated on the basis of the market price of the Company's Ordinary Shares as at the date that the respective audited accounts are issued each year. 

As part of the Acquisition agreement, the Company will receive an annual management fee of RMB1m from IMM. The vendor of the business has agreed to remain with IMM for a period of 4 years from the date of the Acquisition.

IMM's promoter and management team formerly held senior positions in the advertising industry with companies such as BBDO, Sila Communications Group, Carat China, and Beijing Yahuan '630 Drama'. 

The Acquisition supports the Company's strategy, as announced in the Company's Admission Document, to expand its regional reach and further strengthen its presence in China for the growth of its business in that region. The Directors also believe there is added benefit in the fact that IMM is established in Shanghai; the home of many multi-national corporations and which is seen by many as the gateway to China. 

This Acquisition, together with the recently announced acquisitions of Ausscar Group and the AllChina Group, fits together to enable RHM to participate in the entire value chain in Chinese media. 

The Acquisition allows RHM to trade television content in return for television advertising space whilst AllChina provides RHM with a medium to trade or sell that television advertising space with other media companies for advertising on alternative advertising platforms (e.g. radio, newspapers etc). RHM can then bundle or re-package these various advertising resources and sell on, either for cash or barter-trade, for 'merchandise'. The supply chain is then completed once RHM sells this 'merchandise' for cash through its existing AxChange model. 

Strategically, the Directors believe RHM is now able to penetrate into one of the most lucrative media sectors in China (TV airtime) and to respond quickly to supply and demand in the media sector for various products, significantly enhancing the AxChange model. In addition, RHM now becomes a direct supplier of that advertising and media space thus enabling the Company to increase gross margins and provide clients with added value through control of the supply chain, further enhancing the Company's competitiveness.

Group Managing Director Cheong Chia Chieh said today-

"IMM's 18 year history in national and foreign media services and production will be a strong asset to RedHot, especially its well known FMCG clientele such as Johnson & Johnson, Pepsi and Dulux to name but a few.

The Acquisition of the IMM business not only helps us to penetrate into the most lucrative media sector in China, i.e. TV airtime, but also completes our AxChange formula. The acquisition of IMM fits in extremely well with the existing RedHot strategy and this, along with our other recent acquisitions, will enable the Company to be involved in the entire supply chain in China for advertising, from content ownership to media buying.

We believe that these recent acquisitions in China will create a platform for AxChange to unveil its true value by establishing a means to generate and sustain a stable supply of media space. We anticipate that these acquisitions, combined with the organic growth of the AxChange model, will create increased demand from both advertisers and media owners; attracting advertisers because of the increasing demand from consumers and merchants and attracting media owners due to the increased demand from advertisers. We anticipate an increase in consumer and merchant demand as the product offering increases and the increased levels of supply increase the competitiveness of the AxChange model.

IMM is the last business acquisition for this year, but definitely not for the future. We are very excited about the latest series of acquisitions and are strongly confident that these, combined with existing RHM business, will give us a unique market positioning and propel us towards our vision of creating an Axchange model that is integrated to cater to the advertising media sectors."

In the announcement made on 2 December 2008 regarding the acquisition of AllChina, the deferred consideration caps were expressed in RM; they should have been expressed in RMB.

This announcement should be read in conjunction with the Admission Document. Terms defined in the Admission Document have the same meaning when used in this announcement.

For further information, contact:

RedHot Media International Limited

Melissa Gilmour or +44 7970 767869

Cheong Chia Chieh or +601 2329 5522

Raymond Hor +603 7651 0188

Blomfield Corporate Finance Limited +44 207 489 4500

James Pinner or

Nick Harriss

Religare Hichens, Harrison plc +44 207 382 4450

Daniel Briggs or 

Colin Rowbury

Notes to editors:

Exchange rate: £1 = RMB10.599

RedHot Media International Limited (AIM: RHM), is a Cayman Islands incorporated holding company. Its primary activity is that of media broking group in Malaysia and China, with the majority in Malaysia.

The Group has also developed an innovative barter sales trading business model (AxChange) which the Directors aim to grow both in Malaysia and in other Asian countries; initially China (initially opening offices in Beijing, Shanghai, Guangzhou and Macau) followed by Vietnam (initially opening offices in Ho Chi Minh City and Hanoi). The Group has recently (in December 2008) completed three transactions in order to pursue this goal in Malaysia and China.

Under the AxChange distribution based business model, RedHot acts as a non-stockholding distributor for certain clients (for whom it also acts as a media broker) with the intention of generating higher margins for the Group than would be obtained in conventional media buying. RedHot enters into a contract to draw down various lines of inventory and then, as the inventory is sold through RedHot's distribution network, the proceeds from the sales are used to purchase media space for the same client.

Traditional media broking involves purchasing advertising space on behalf of clients and earning commissions from the media providers based on the amount of advertising purchased. The AxChange business model is designed to generate demand from both ends of the value chain i.e. both advertisers and consumers/merchants and to act as a means of generating additional sales for both.

The AxChange business model has also been designed to free up working capital; allowing RedHot's customers to pay for advertising and assist new entrants into Malaysia and China (where capital controls are still in place) in selling their products using RedHot's established distribution networks. RedHot also believes the model provides benefits to its distributors; providing them with lower unit prices and access to credit facilities to which they otherwise would not have access.

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