Microsoft Corp. has agreed to pay 94 million yuan ($12.3 million) for a stake in Sichuan Changhong Electric Co. and will form a cooperative alliance with the TV and electrical appliance maker, the Chinese company said on Monday.
In addition to the nearly 1 percent stake sale, the two companies will cooperate to develop, make and market TVs, computers and other digital home-entertainment products, said Sichuan Changhong in a stock filing to the Shanghai Stock Exchange.
The project will face challenges that have dogged several such collaborations in the past, but the market is now more mature and the deal gives Microsoft a foot in the door with a potentially key player, said Sigurd Leung, head of IT research at Beijing-based Analysys International.
Changhong is a state-backed company, so for Microsoft to get 1 percent is still quite significant, he said.
He said Microsoft's move echoed its 1999 Venus project, an operating system that would allow Chinese electronics firms to combine a Web browser, PC and video compact disc player in a single box atop TVs.
That project eventually failed, because of low-speed Internet connections and lack of good content, Leung said.
China has since become the second-largest Internet market after the United States, with around 140 million Web users and growing use of high-speed broadband.
This time, the project is also not guaranteed to succeed. Others have also tried it for some time, without much obvious success.
Under a memorandum of understanding, the Chinese company would place 15 million new shares with Microsoft at a price of 6.27 yuan each, a 43 percent discount to its last traded market price of 10.92 yuan.
Changhong's shares rose their daily 10 percent limit on Monday, helping to lift other technology stocks including TCL Corp., which rose 4.72 percent, and Datang Telecom Technology Co., up 5.02 percent.
The deal would give Microsoft a stake of nearly 1 percent in Sichuan Changhong, according to Reuters calculations. The U.S. software giant would be a long-term, strategic investor, Sichuan Changhong said.
The Chinese company, which posted sales of 4.97 billion yuan in the first quarter of 2007 while net profit climbed 24 percent from a year earlier to 96.32 million yuan, said it would soon present the deal to its board for approval.
($1 = 7.62 Yuan)