Investment firms buy into Sina

Rick Carew & Aaron Back
The Wall Street Journal

Three investment firms, including Sequoia Capital, are joining Sina Corp.’s management to invest $180 million in the company as they attempt to reinvigorate China’s largest internet portal, according to people familiar with the situation.

Sequoia Capital, FountainVest Partners, and Citic Capital Holdings Ltd. are backing the Sina management team’s purchase of new shares that will give the group a 9.4% stake in the company, according to the people. Sina’s management, led by chief executive Charles Chao, will put in around $50 million and the three investment firms will provide the remaining roughly $130 million, one person said, with each taking stakes of a similar size.

In September, Sina said it was planning to sell the new shares to its management in a “private equity placement” to fund acquisitions and its working capital needs. Since that announcement, Sina has been hammering out terms with the investor group to provide the financing.

The investment agreement, which was completed this week, according to one person, comes as Sina dropped a plan to acquire assets from Focus Media Holding Ltd. The deal would have given Sina access to a huge network of television screens playing advertisements in office buildings across China.

Sina’s management is building a stake in the company with the aim of showing investors its confidence in the future prospects of the business. The deal represents a “management buy-in,” giving the management a bigger stake in the company’s future and greater say over its operations. Sina’s management ranks have turned over several times since its founding and although the management isn’t taking over the company, they will have more of their personal wealth tied up in the business and a greater incentive to stay on-board.

The new investors are betting the management can engineer a turnaround in Sina’s business. Sina was an early mover in China’s competitive internet market, but has failed to keep pace with competitors in recent years.

Unlike some competing portals like Inc. and Tencent Holdings Ltd., it never moved into online games, which has proven to be highly profitable and also resilient during an economic downturn. Sina’s heavy exposure to the highly cyclical online advertising has hurt its performance since the onset of the global financial crisis.

Still, Sina’s internet portal remains a valuable franchise that has wide recognition among Chinese internet users. Sina earns advertising revenue from its main news portal supported by its own in-house news gathering operation and portals for consumers shopping for apartments and automobiles. In its third quarter results, the company said it is now seeing signs of a strong recovery in online advertising.

Sina combined its real-estate portal with part of E-House (China) Holdings Ltd. to form China Real Estate Information Corp., which raised $231 million in an October listing on Nasdaq. Sina owns a 33.4% stake in China Real Estate Information.

Sequoia Capital is one of the pioneering U.S. venture capital firms that grew up alongside California’s Silicon Valley. Its China investing team is led by Neil Shen, a former entrepreneur and banker.

FountainVest was founded in 2007 by chief executive Frank Tang and the former China investment team of Singapore’s Temasek Holdings Pte. Ltd. Mr. Tang raised US$950 million last year from investors including Temasek, Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan.

Citic Capital is an alternative investment management firm that manages over $2 billion and is owned by affiliates of Chinese state-owned conglomerate Citic Group and China Investment Corp., the sovereign wealth fund.

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