Monstermob Group, the wireless value-added services (WVAS) company that came a cropper in China, is now being pursued by Nasdaq-listed Linktone after originally accepting an offer from Spain's LaNetro Zed.
Linktone, which also offers WVAS in China, has until Friday 23rd to make an offer. On that date Monstermob has called an extraordinary general meeting to vote on the LaNetro bid, which its directors continue to recommend.
LaNetro, little known outside Spain, was born on the froth of the Spain's dotcom bubble as an internet portal. As the dotcom boom turned to dust, LaNetro's founder Javier Perez Dolset was quick to spot that better opportunities lay in selling ringtones and other content for mobile phones.
EngagingChina first bumped into Perez Dolset back in the days of the internet boom and his ambition was obvious, although he has had to suffer the ignomy of seeing two IPOs pulled at the eleventh hour: one on the tail-end of the internet boom and the second at the end of last year.
LaNetro's proposed acquisition of Monstermob would not only treble the size of LaNetro but give the company respectability and a much-needed China connection — after all, with 430m mobile users, even a small slice of the market would boost LaNetro's top line.
Nevertheleess, the WVAS business is particularly problematic in China as UK-listed MonsterMob and other China-focussed WVAS plays found out when China Mobile, the largest operator, suddenly clamped down on miss-selling of services such as ringtones — see this article in EngagingChina.
In its recent trading update, MonsterMob was unususually blunt about the consequences that the clampdown has had on its China business:
There continues to be considerable uncertainty as regards MonsterMob'sbusinesses in China, which have seen their trading performance very severely impacted since the changes in regulations in July 2006. In response, numbers of employees have been significantly reduced… Without a meaningful recovery in China it is possible that the overall outcome for 2007 could be below that of 2006.”
The clampdown has highlighted the great vulnerability of the many players operating in China's WVAS industry and has led some of MonsterMob's competitors to look to opportunities outside the wireless business. For example, Hurray Holding is buying up music labels in China, while Linktone has created a JV with TV and radio stations. Tom Online, the largest player in the WVAS market, is also pursuing a diversification strategy with ventures with Skype and eBay, for example.
The fear underpinning these diversification moves is that the clampdown shows how easy it is for China's WVAS providers to get caught between a rock and a hard place — between the content owners and mobile phone companies.
Of course, an alternative strategy to diversification is consolidation, and that no doubt is why both Spain's LaNetro and China's Linktone have designs on MonsterMob. However, I don't think either is prepared to pay a particularly high price for MonsterMob, given the challenges facing the WVAS market in China.
More on the woes facing WVAS in China in this story.
Elsewhere on the WVAS front:
GMO, another China-focussed WVAS player, reported its maiden results with revenues of $2.8m and EBITDA of just $600,000. Unsuprisingly, GMO talked about the “challenging environment” in China's WVAS market but remains confident. GMO joined London's AIM market last September, raising £5m.