Chinese in-store advertising network operator CGen Digital Media Company Ltd. on Monday abandoned its planned initial public offering, agreeing instead for rival Focus Media Holding Ltd. to acquire it in a deal that could be worth as much as $350 million.

Shanghai-based Focus Media agreed to pay $168.4 million in cash up front, with the potential for an additional payment of $181.6 million in cash and stock if certain performance incentives are reached within two years of the dealÕs close.

Shanghai-based CGen was set to sell 9.2 million American Depository Shares in a public offering this week for between $13 and $15 a share. But the company ultimately determined the return it would receive in the buyout was better than it could get in the public market. At $14 a share, its market capitalization would have stood at $370 million.

Recent softness in the IPO market as well as the performance of another Chinese offering last week may have impacted the decision by CGen. VisionChina Media Inc., which operates an advertising network over mass transit systems in China, went public Dec. 6 at $8 per share, below its anticipated $9.50-$11.50 range, and closed unchanged its first day of trading. Midday Monday, shares of the Shenzhen company were trading at $8.50.

With the acquisition, Focus Media eliminates a competitor, which should give it more pricing power. Focus Media operates advertising networks used predominantly in high traffic areas of commercial buildings and other retail operations.

CGen operates a network of digital, flat-panel displays in 534 retail chain stores and superstores, such as France-based Carrefour SA. In September it entered into a three-year agreement to deploy its network in 100 Wal-Mart Stores Inc. locations in China. Unlike other networks that require manually changing pre-recorded DVDs for advertising displays, CGen's network consists of a server system linked by broadband connections to the stores, allowing for more timely and cost-effective distribution.

In a research report Monday, CIBC World Markets analyst Jason Helfstein said that Focus Media "has struggled with its in-store ad network," in part due to the competitive environment. This has put pressure on the company's gross margins, he added. Helfstein estimated that with the acquisition, Focus Media's market share of the in-store advertising market will increase to as much as 70% versus the mid-30% of the market it controlled previously.

For the first six months of 2007, CGen reported net income of $7.2 million on revenues of $18.7 million. For the third quarter it was expected to report net income of between $2 million and $2.9 million on revenues of $9.9 million to $11.3 million.

The acquisition follows Focus Media's March purchase of Chinese Internet advertiser Allyes Information Technology Co. in a deal valued at up to $300 million. In 2006 it acquired rival Target Media Holdings Ltd. for $325 million in the first private sector merger between two Chinese companies.

"It's a total land-grab in the out-of-home advertising space in China," said Matt Comyns, a managing partner with research firm JL McGregor & Co., which focuses on China. "There may be a few other out-of-home advertising companies that have special niches that end up going public, but I think over the next few years most of the companies will consolidate with one major player emerging in the space, and I think it's going to be Focus."

Piper Jaffray & Co., which had served as lead manager of CGen's IPO, was financial adviser to the company in connection with the deal.

Though many of CGen's investors were selling shares in the offering, the sale provides a more certain return should the company meet the performance incentives. CGen raised $38.8 million in three rounds of funding in 2005 and 2006. Among its investors are Shanghai Industrial Holdings Ltd., TDF Capital of Shanghai, Redpoint Ventures LP of Menlo Park, Calif., Jafco Co. Ltd. of Tokyo, Sumitomo Corp. of Tokyo, Huitung Investments Ltd. of Taipei and Merrill Lynch & Co. Inc. of New York.