UPDATE 1-China's Xinhua Media eyes stake in online bookstore

(Adds quotes, details and background)

By George Chen

SHANGHAI, July 16 (Reuters) - Shanghai Xinhua Media Co. (600825.SS) is in early talks to buy into Dangdang.com, a Chinese online bookstore that media have said is planning a Nasdaq listing, two sources close to the situation said on Monday.

Dangdang.com, partly held by a group of global investors, including Doll Capital, Walden International and IDG Ventures, has entered talks with Xinhua Media, which approached the online bookstore about a month ago, the sources told Reuters.

Xinhua Media, controlled by state-owned Jiefang Daily Press Group, one of China's biggest newspaper publishers, hopes to team up with Beijing-based Dangdang.com to tap the domestic online book market, said the sources who declined to be identified.

Xinhua Media, which dominates distribution channels for books and magazines in Shanghai, China's financial hub, went public on the domestic A-share market through a back-door listing earlier this year.

"After listing, Xinhua Media is now exploring many different opportunities to expand its core business -- publishing and distribution," said one of the sources.

Dangdang.com received $30 million from a group of foreign investors last July in its lastest round of private fund-raising, valuing the company at about $250 million.

Officials at Xinhua Media declined to comment, while a spokesman for Dangdang.com could not be immediately reached for comment.

PRICE DOES MATTER

China is the world's second-largest Internet market, trailing only the United States, as many young Chinese consumers prefer online shopping which can be cheaper and more convenient than conventional stores.

Many Chinese online retailers, including Dangdang.com and its top rival Joyo.com, offer product discounts to online consumers.

Xinhua Media, which has no relation to China's official Xinhua News Agency, already operates a locally oriented service, bookmall.com.cn, that sells books and DVDs online mainly to consumers in Shanghai.

Xinhua Media executives have decided to revamp bookmall.com.cn through a partnership with a major industry player and link it to its large distribution network, the sources said.

However, there are many uncertainties, such as industry rules and pricing, that must be addressed before Xinhua Media and Dangdang.com can reach a deal, while Xinhua Media has not yet hired an investment bank or accountant to conduct due diligence, they said.

Dangdang.com, which bills itself as the country's biggest online bookstore, plans to list on the Nasdaq eventually, according to Chinese media reports last year.

"Price is a very important factor for a potential deal," said another of the sources.

"If Dangdang.com goes to Nasdaq for a listing, it can raise a lot of money," the source said. "I don't think Dangdang.com will sell its stake too cheaply before a Nasdaq IPO."

Dangdang.com at one time was in talks to sell a controlling stake to U.S. Internet retailing giant Amazon.com Inc. (AMZN.O). But the two sides failed to agree on a price and Amazon ultimately ended up buying China's Joyo.com for $75 million in 2004, Chinese media have reported.