China's Linktone in bid for UK's Monstermob

Chinese mobile services firm Linktone said today that it expects to make an offer to take control of ailing UK ring-tone and mobile games provider Monstermob. 

The current $78m share offer is conditional on Monstermob shareholders rejecting an offer from Spain's LaNetro Zed. The shareholders will make a decision on the Spanish offer on 23 February. 

Monstermob's shares have fallen almost 70 per cent over the past six months, and the company has warned of further bad news this year.

The troubles stem in part from acquisitions made in China over the past year. The UK firm invested heavily to buy control of three Chinese firms specialising in ring-tones and mobile games.

However, an abrupt change in Chinese telecoms regulations has hit Monstermob's Chinese mobile service revenues.

In mid-2006, authorities moved to protect mobile subscribers from service providers which signed them up for unwanted services, for which they were later charged through their mobile phone bills.

The new rules provide much clearer notification of new services, and make it easier for users to unsubscribe.

As a result of the rule change, the total market value for so-called wireless value added services in China slumped from more than $270m in the second quarter to around $210m in the fourth quarter of 2006, according to Deutsche Bank. 

Linktone ranks among China's top six wireless value added services providers in revenue terms.

But the company was particularly hard hit by the new rules which saw its revenue fall approximately 15 per cent in both the third and fourth quarters last year.

Linktone intends to exchange its Nasdaq-listed American Depository Shares for Monstermob shares.

However, Deutsche Bank analysts expect further downside surprises from the Chinese firm, and rated its shares at 'hold' at the end of January.