Completion of Subsidiary Divestiture and Earnout ReductionSearchMedia Holdings Limited (“SearchMedia” or the “Company”) (NYSE MKT: IDI) (NYSE MKT: IDI.WS), one of China's leading nationwide multi-platform media companies, today announced it has appointed Mr. Stephen Zhu as the Chief Operating Officer of its China operations, effective August 20, 2012 and has also divested its subsidiary Qingdao Kaixiang Advertising Co. Ltd. (“Qingdao”) in order to further its planned minimization of the Company’s outstanding earnout liability.
Mr. Zhu joins SearchMedia from Symbol Media, an integrated outdoor advertising company he founded in 2009, whose client base includes well-recognized brands such as KFC, Puma, Coca-Cola, Volkswagen, AIA, Samsung, Canon, Ikea, Land Rover and covered many industry sectors including finance, auto, retail and electronics. Symbol Media is the Company’s partner for its previously announced Luxury Mall LCD Joint Venture. Mr. Zhu has now joined SearchMedia full-time as its Chief Operating Officer of China Operations. Through his ten years of experience in the out-of-home advertising industry, Mr. Zhu has developed deep relationships with the major advertising agencies in China, including Kinetic, Zenith, Optimum, Carat, McCann and Dentsu. Mr. Zhu has also been a market leader developing 3D advertising platforms within China.
As part of its previously announced Integration Program and based on an analysis of the recent performance and projections of Qingdao, the Company has agreed to divest Qingdao back to its previous owners and eliminate the related earn-out liability of $4.1 million. Beginning August 31, 2012, Qingdao's operating results will no longer be part of the Company's consolidated financial statements. The Company believes that the cost savings from not carrying out the remaining earnout obligations pursuant to the acquisition agreement for Qingdao frees up the Company's resources for use in other more promising opportunities. Through the divestiture of Qingdao, the Company has materially reduced its outstanding earn-out obligations by 41% from $10.1 million to $6.0 million.
Peter W.H. Tan, Chief Executive Officer of SearchMedia, remarked, “We are thrilled to have Stephen Zhu join as Chief Operating Officer of our China operations. I have known Stephen for over five years and have previously invested in some of his proprietary concessions. Stephen has a great reputation in the China out-of-home advertising industry and he will be an important catalyst in the sales effort with our recently announced major concessions with Home Inns & Hotel Management Inc. and our Luxury Mall LCD Joint Venture. Furthermore, his strong government relations and managerial and business development experience will enhance our growth objectives and help us execute our new strategic initiatives. Stephen will be joined by one of the most talented sales and media development teams in Shanghai.
On the decision to divest Qingdao, Tan added, “It is never an easy decision to dispose of an operating subsidiary that has been with the Group from the outset, but we feel that given the significant and persistent declining sales and profitability trend of Qingdao over the last four years, in order to preserve shareholder value and allow the Company to pursue additional accretive concessions, it is in the best interests of the Group to enter into a separation agreement with Qingdao. It is, of course, beneficial as a whole to be able to eliminate from our balance sheet outstanding earn-out and tax liabilities in the aggregate amount of $6.8 million. Qingdao represented only 5% of our Group revenue in 2011 and we believe that this divestiture will have a minimal impact on our future financial performance.”
Peter Chan, Interim Chief Financial Officer of SearchMedia, added, “After a thorough analysis, we have concluded that it is in the Company’s best interest to divest Qingdao back to its ex-owners in exchange for the cancellation of the $4.1 million cash earn-out due and elimination of $2.7 million tax liabilities and $1.9 million inter-company liabilities. With the Qingdao divestment, we expect a non-cash disposal loss of $3.2 million against our year-to-date June 30, 2012 net income of $9.8 million. We believe the Qingdao divestment will result in a large cash savings and the elimination of certain liabilities would improve the Company liquidity and bolster its balance sheet allowing it to pursue other concessions with better returns.”
Availability of Form 20-F For Year Ended December 31, 2011
On May 15, 2012, the Company filed its Annual Report on Form 20-F for the year ended December 31, 2011, which includes the Company’s audited financial statements (the “2011 Form 20-F”). The 2011 Form 20-F is available on the Company’s website at www.searchmediaholdings.com by clicking “Investor Relations”, then “SEC Filings”. The Company will send a hard copy of the Company’s complete 2011 Form 20-F upon the request of a shareholder to firstname.lastname@example.org or by requesting a hard copy of the 2011 Form 20-F on the Company’s website.