Hong Kong's Tom Group has joined the rush of overseas mediagroups investing in China's film and television industry by acquiring a 35%stake in leading private film producer and distributor Huayi BrothersInternational Holdings.

The deal sees Tom Group acquire a 27% stake in HuayiBrothers for US$5m in cash. Tom will also subscribe to US$5m of convertiblebonds, payable in cash, which upon conversion increases its stake to 35%. Inaddition, China's leading venture capitalist, China Equity International Holdings,has taken a 3% stake in Huayi Brothers.

According to a statement, both companies share the aim ofseeking a public listing for Huayi Brothers or finding a Hollywood strategicinvestor within three years. The two companies have also agreed that in a fewyears Tom and other investors can increase their stake to around 50%.

Thedeal follows new regulations which allow foreign companies to invest inmainland film and television production companies for the first time. In thepast few months, US studios and media groups, including Warner Bros, Viacom andSony Pictures Television International, have all announced the formation ofSino-foreign production ventures.

Tom Group, which is part of Hong Kong tycoon Li Ka-shing'sgroup of companies, is currently involved in five media segments - internet,outdoor advertising, publishing, sports and television and entertainment. Itholds a controlling stake in Chinese-language satellite channel ChinaEntertainment Television (CETV) which could benefit from Huayi Brothers'content and access to mainland talent.

Huayi Brothers, founded by brothers Wang Zhongjun and WangZhonglei, produces 4-5 movies and 400 TV drama episodes each year. In 2003, itaccounted for about one third of box office revenues from domestic movies withhits such as Cell Phone, Warriors Of Heaven And Earth and Cala, MyDog! It also co-produced Feng Xiaogang's A World Without Thieves,which opened in Hong Kong and China today, and Stephen Chow'shighly-anticipated Kung-fu Hustle.

Announcing the deal, Wang Zhongjun said he was glad to seethe gradual opening up of China's movie business to foreign investment:"Currently, the few joint ventures in the film industry are all start-ups andconfined to co-operation between state-owned enterprises and foreign companies.The partnership between Huayi Brothers, a fast-growing private company in thefilm and TV business, and Tom, a leading multimedia enterprise in the GreaterChina region, represents a step forward in the development of the entertainmentindustry in China."

Huayi Brothers' activities also span advertising and talentmanagement. It raised ad income of HK$50m for A World Without Thievesthrough sponsorship and product placement with companies such as China Mobile,BMW and Nokia.