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Transcript of Framedia (A)
Images from Shutterstock.com Out-of-home LCD Television and Poster Media Background:
1. Captive Networks Inc. (Canada) were first to use LCD screen advertising in 1990s
2. Poster-sized frames were in use for several decades so far, they could be easily installed everywhere
3. Top 3 outdoor advertisers in the World were - Clear Channel Outdoor, JCDecaux and Viacom Outdoor Problem #2: What to do with Framedia? Dr. Tan Zhi (CEO of Framedia) has 3 options in this crossroad:
1. do nothing
2. sell the company to the Focus Media or Target Media
3. go public on their own
Which is the best solution? Mr. Tan Zhi has three options regarding Framedia’s future: being bought by Focus media or Target media, going public on NASDAQ and doing nothing.
After calculating the value of Framedia media by FCF analysis and multiple analysis; it is seen that the $8.2 million first offer of Focus group for the acquisition was too much undervalued. $110 million asked by Mr. Tan Zhi seems like a fair price.
Poor current ratio (0.8) and cash ratio (0.15) of Framedia shows that it may have problems in the near future.
Continuing the operations and doing nothing is risky in such an infant market as new competitors can arise and lower the profitability of Framedia
Being bought by Target media does not make sense as they together would not be a market leader
Going public on NASDAQ on their own was risky because nobody can estimate the investor behavior in an environment which faced two IPOs recently from Chinese media market.
Being bought by Focus media as the best option for Framedia. Conclusions Framedia (A) Content of the presentation:
1. Identify problems
2. China's Media Market
3. Study 3 options + Game
4. Conclusion Facts about China's media market:
1. 5th largest in the World
2. Audience of over 1.3 billion
3. 19% annual industry growth
4. spending on advertising only 0.8% of GDP Problem 1: China's Media market Part 1: Problems
1. Where is China's Media Market going?
2. What can be done with Framedia?
A. Should it be sold to Focus Media or Target media?
B. Should Framedia do nothing?
C. Or should they go public? Group C:
Simonas Jurgionis China's market segments:
1. Television, Movie and Broadcasting Media
2. Newspapers, Periodicals and Print Media
3. Online Media
4. Outdoor Media TV, Movie and Broadcasting Media:
1. The State Administration of Radio, Film and Television requires every TV station to be 100% state-owned.
2. Every move in this field is highly controlled by the state.
3. Radio broadcasting - small market. Newspapers, Periodicals and Print Media:
1. 2 000 newspapers, 9 000 magazines, 500 publishing houses
2. 30-40% of the were based in urban area
3. Majority of them were state-owned
4. In 2004 Beijing Media Corp completed its initial public offering (IPO) in Hong Kong Online Media:
1. As Internet usage grew, China's Online advertising revenue grew as well ans sill has alot room to grow
2. China's Top 3 online portals were all listed at NASDAQ
3. Highly regulated by the Chinese laws Outdoor Media:
1. includes bill boards, transport, neon lights, out-of-home poster frame/LCD TV screen based media
2. high level of competition
3. much less regulations comparing with other ways of advertising
4. open for direct foreign investment Why do Framedia have to make changes?
Focus media show interest to acquire
Framedia Target media also interested in this acquisition
Market situation - after being acquired Framedia can increase sales and purchase efficiency and increase service range for clients Out-of-home LCD television/poster media advantages compared to traditional media:
1. Clear targeting and focused consumer marketing
2. Captive environment
3. Lower cost 3 Most powerful companies:
1. Focus media - went public, has the highest number of LCDs in China, leader in IT sector ads, market leader in office buildings, controls over 20 000 LCDs in China
2. Framedia - has the biggest amount of poster frames in China, leader in residential and elevator poster frame segment
3. Target media - competes head-to-head with Focus Media, has stronger positions then Focus Media on LCDs in the apartment and convenient store segments, controls about 18 000 LCDs in China Solution 1: do nothing
continue to dominate at residential and elevator poster frame advertising segment
new competitors can arise and lower the profitability of Framedia in addition to the income Solution 2: sell to Focus Media or Target media
being sold by cash and stocks would be profitable, because Focus Media after acquisition will be more powerful and will have an absolute advantage in residential and elevator poster advertising market which will bring them investors and more valuable stocks
too risky, as it is going to be listed on NASDAQ soon and does not have enough market power to build a new strong market leader company with Framedia as Focus Media has. Solution 3: go public on their own
good option for private equity investors, company staff and Tan Zhi
nobody can estimate the investor behavior in an environment which faced two IPOs recently from Chinese media market
the risk of not being appreciated by investors in terms of shares is quite high If it is decided to sell the company for the Focus Media or Target Media, company evaluation must be done. We chose 2 methods of doing this:
1. Free cash flow (FCF) analysis
2. Multiples analysis FREE CASH FLOW ANALYSIS Multiples Analysis What is FCF? What would be your choice? What would you do?
Discuss with each other for 10-15 minutes your choices, find one decision for your group. Give arguments :) Game time! Game rules:
The goal of the game is to decide what Framedia should do.
1. Split into groups of 4
2. 1st person - CEO of Framedia
2nd person - convinces to sell
3rd person - convinces to go public
4th person - convinces to do nothing
3. Discussing for 10 minutes. Thank You! Advantages: Future operations are taken into consideration
Disadvantages: There might be changes in the market structure in the future P/E Multiple:
Advantage: Data availability is high
Disadvantage: Cannot be used if earnings are negative
Advantage: Applicable even when earnings are negative
Disadvantage: Not reliable as sales are not a direct value driver