Focus Media Holding Ltd. (FMCN) fell the most in four months on concern a U.S. Securities and Exchange Commission investigation into potential securities law violations will endanger China’s biggest leveraged buyout.
Focus, a Shanghai-based advertising company, dropped 2.8 percent to $25.08 by 2:03 p.m. in New York, set for the steepest one-day slump since Sept. 24. The company, which sank as much as 8 percent, said in a Jan. 18 regulatory filing that the SEC is probing the purchase and resale of companies including Allyes Online Media Holding Ltd.
Focus agreed Dec. 19 to be bought for $3.7 billion by a consortium of investors led by Carlyle Group LP. (CG) The ad company, which short-seller Muddy Waters LLC said in 2011 overstated its network, joins Chinese companies seeking to withdraw from U.S. exchanges after corporate governance concerns cut valuations. The investigation may complicate Focus’ go-private plans, said David Riedel, president of Riedel Research Group Inc.
“Any time you say SEC and probe it’s certainly bad for the company’s share price, especially if part of that sentence also includes U.S.-listed China,” Riedel said by phone today in New York. “But the real deciding factor is whether the privatization is going to go through.”
A phone message left for Randall Whitestone, a spokesman at Carlyle Group, was not immediately returned.
The SEC first informed Focus it was initiating a non-public investigation March 14, and sought documents on past acquisitions, including Allyes, the company said. the Washington-based body last month accused the Big Four accounting firms of blocking a probe into potential fraud by nine unnamed China-based companies by withholding documents.
Focus agreed in 2007 to pay as much as $300 million in cash and shares for Allyes, then China’s largest Internet ad agency. In January 2010, Allyes and Focus management members paid an additional $13.3 million for a 38 percent stake in Allyes. Six months later, Silver Lake Management LLC purchased a controlling stake in Allyes for $124 million.
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