The operator of a leading Chinese real estate portal, SouFun, won’t take an ownership stake in Century 21 China Real Estate after all, as the struggling franchisor of the Century 21 brand in China was unable to obtain third-party consent to a deal that would have made SouFun its “strategic partner.”
Under the terms of agreements announced in October, SouFun was to have taken a $51 million stake in Century 21 China, which would have made it the second-largest shareholder in the company.
The companies planned to form a “mutually preferred strategic partnership” across business lines including advertising, e-commerce, listings services, Internet and real estate financing, and secondary and primary brokerage services.
Those plans unraveled because Century 21 China did not obtain third-party consent within 60 days, as stipulated by the agreements, SouFun announced today. Century 21 issued its own statement, saying the agreements were terminated “due to the fact that the parties did not reach agreement with respect to third-party consent to the transaction.”
News that the deal had fallen through sent shares in IFM Investments Ltd., the company that does business as Century 21 China, plummeting more than 30 percent in morning trading on the New York Stock Exchange today. In August, the stock exchange gave the company 18 months to bring its market capitalization back above the minimum required $50 million. Before today’s drop in share price, IFM Investments was valued at around $13 million, according to Yahoo Finance.
Century 21 China has been struggling since last year, when Chinese authorities introduced measures intended to curb real estate speculation. The measures included new capital gains tax regulations, higher down payment ratios, ceilings on new home prices, and limits on investor purchases.
In its most recent quarterly report to investors, IFM Investments posted a $4.1 million net loss for the third quarter, with revenue down 38 percent from a year ago, to $20.6 million. Most of the company’s revenue ($13.7 million) came from company-owned brokerages, primary and commercial services ($3.7 million), and mortgage settlement services ($2.7 million). Revenue from franchise services totaled $500,000.
In July, Century 21 China announced an agreement with the Lending Club of China aimed at funneling cash from investors into home loans. In September, IFM Investments announced that Century 21 China Real Estate subsidiary Shanggu had started advertising listings on Alibaba Group’s Taobao.com, an Amazon.com-like Chinese shopping site.
Century 21 China Real Estate CEO Donald Zhang said in a statement that while company-owned brokerages “continued to be affected by challenging market conditions in the third quarter,” he was pleased by “the solid growth of our financial services segment.”
The company continues to downsize in order to reduce expenses. As of Sept. 30, the Century 21 China Real Estate Network employed about 10,900 sales professionals and staff working out of 835 offices in 23 cities. That’s down from 865 offices and 11,800 sales professionals at the end of June.
“The efforts we’ve made over the past several quarters position our business to be more efficient and more profitable in the long term,” said Century 21 China President Harry Lu, and have resulted in “a significant improvement in both cash flow and bottom-line performance.”