Tom.com pulls out of ATV deal


Li Ka-shing likely was not interested in retaining a minority stake in ATV, leading to the deal collapsing

By Alex Frew McMillan

HONG KONG, China -- Tom.com Ltd. has pulled out of a deal to buy a 33 percent stake in television station ATV.

The surprise move, announced late on Monday evening, came the same day ATV said it had won the right to broadcast directly into China's Guangdong province (Full story).

Tom.com is controlled by tycoon Li Ka-shing. The company agreed last month to pay HK$290 million ($37 million) to buy 33 percent of ATV (Full story).

But late Monday, Tom.com pulled out of the deal saying it had been given insufficient access to privately held ATV's books.

It scrapped the investment because "the company is unable to conduct any meaningful due diligence investigation."

Blocked by Liu

ATV's largest shareholder, Liu Changle, is thought to have blocked Li's attempts to gain control of the company.

Tom.com has typically bought majority control of any company it has invested in over the last two years.

"If they can't buy Mr. Liu's stake, they won't be the majority shareholder. So they might not want to invest at all," Florence Cheung, research analyst with Sun Hung Kai Securities, said.

Tom.com management complained at an analyst briefing last week that the company had not yet had a chance to look at ATV's accounts.

'All we can do is just guess'

But Cheung speculated that may be a face-saving way of pulling out of a deal Tom.com no longer wanted to do.

"Maybe they looked at their accounts and the stuff doesn't look good. All we can do is just guess what's going on," Cheung said.

The failure of the sale is a blow for Lai Sun Development Co., the company selling the stake. The debt-laden company had been looking to raise cash.

Liu, chairman of Phoenix Satellite Television, reportedly blocked an earlier attempt by Li and Tom.com to buy into Phoenix. Liu and Rupert Murdoch's Star Group each own 38 percent of that company.

ATV is the fourth overseas company to win the right to broadcast into China's media market. It will beam its two free-to-air channels into Guangdong province, which neighbors Hong Kong.

Coup for ATV

That is a coup for ATV -- full name Asia Television -- which beat its larger Hong Kong rival Television Broadcasts (TVB) in winning approval.

The deal opens up a market with 100 million viewers and advertising estimated at 3.5 billion yuan (423 million).

Cheung said a minority ATV stake was clearly not large enough for Tom.com to remain interested, despite the financial boon expected from winning the rights.

Winning the rights may have caused Lai Sun Development to rethink selling its stake.

Stock in TVB is up 9.68 percent at HK$26.05 on Tuesday, with Tom.com trading down 1.75 percent at HK$2.80.