China’s leading online portal by advertising revenue, Sina Corp., will purchase the core assets of the country’s largest out-of-home digital advertising network company – Focus Media. The over US$1 billion stock deal highlights the rising clout of the fast-growing Internet industry in China, powered by 290 million netizens at last count, and is expected to close in the first half of 2009.

The acquisition will allow Sina to offer a suite of integrated advertising solutions and cross-selling to Focus Media’s extensive network of customers, reaching a wider audience both online and off. The creation of the “dominant new media platform” in China, at least in concept, will give Sina an edge in positioning the company against its major online rivals – instant messaging leader Tencent and China’s second largest Web portal and search engine Sohu.

Sina’s operating revenues in the 3rd quarter exceeded US$100 million for the first time, up 64% from a year earlier, and online advertising represents 73% of its total revenue. Focus Media’s digital outdoor ad business grew by an average 10% in the last two years and is forecast to churn $130 million profit in 2009.

Sina hopes to benefit from gaining access to about 150 million Chinese urban consumers, in particular the well-heeled and educated professional sector with greater spending power. Advertisement revenue will be derived from Focus Media’s 120,000 LCD screens and digital frames installed in over 90 cities across China and about 250 outdoor LED billboard displays in Shanghai and Beijing.

From the Wall Street Journal:

Under terms of the deal, Shanghai-based Focus Media Holding Ltd. will sell Sina its nationwide network of hundreds of thousands of flat-panel displays that play video ads in places like stores and office-building elevators. Sina will also acquire related ad businesses, which together accounted for about 52% of Focus Media’s revenue and about 73% of its gross profit in the first nine months of the year, the two companies said Monday.

Sina said it will issue 47 million new shares to Focus Media for distribution to its shareholders. The size of the issue is close to the roughly 56 million shares Sina had outstanding before the deal, according to the Nasdaq Stock Market. That means significant dilution for existing Sina shareholders. The 47 million shares would be valued around $1.37 billion based on Sina’s closing share price Friday.