Focus Media Makes Deal in Biggest China Leveraged Buyout
Focus Media Holding Ltd. (FMCN), a Chinese advertising company, agreed to be bought by a consortium of investors led by Carlyle Group LP (CG) in a $3.7 billion deal that will be the country’s largest leveraged buyout.
The board has approved the offer from the group, which also includes Chief Executive Officer Jason Nanchun Jiang, to acquire the Shanghai-based company for $27.50 per American depositary share, Focus Media said in a statement. The price was 50 cents more than the group offered in a non-binding proposal in August. The shares jumped 6.7 percent to $25.52, the highest close since April 12.
“They’re getting a very unique, monopolistic network of advertising in the second-largest economy in the world, it’s a great deal,” David Riedel, president of Riedel Research Group Inc., said by phone from San Francisco. Riedel doesn’t own Focus Media stock. “It highlights the fact that these sophisticated investors who are doing their due diligence are getting a very good opportunity here.”
The transaction needs approval from at least two-thirds of shareholders and is scheduled to close in the second quarter of 2013, according to the statement. Jiang, company managers and Fosun International Ltd. (656), which altogether hold 36 percent of the stock, have agreed to vote in favor of the deal, Focus said.
Focus Media, accused by short-seller Muddy Waters LLC of overstating its ad network, joins a growing number of Chinese stocks seeking to withdraw from U.S. exchanges after concern about corporate governance depressed their valuations. Since April 2010, 19 of the 49 companies that announced intentions to go private have completed the transactions, while four have failed, according to a Nov. 5 report by Roth Capital Partners.
Investors are “clearly better off” with Focus Media out of U.S. capital markets, Muddy Waters founder Carson Block said in an e-mailed statement related via Dukas Public Relations.
“We note that many pension funds and endowments will presumably be the new owners of this company when the deal closes,” Block said. “Should Focus be unable to meet its sizable debt obligations, we encourage regulators and fund investors to ask hard questions about the rationale and due diligence process underlying this purchase.”
Muddy Waters in February published a fifth report saying Focus Media overstated its ad network and overpaid for acquisitions. The company has said the allegations were based on “innuendo.” Short sales involve borrowing a stock or bond and then selling it in anticipation of a price decline.
The buyout group also includes FountainVest Partners, Citic Capital Partners and China Everbright Ltd. (165) CDH Investments Fund Management Co., an investment company based in Beijing, dropped out of the group, Dow Jones Newswires reported Dec. 7. The deal values Focus Media’s equity at about $3.7 billion on a fully diluted basis, according to the statement.
Lenders including Bank of America Corp, state-owned China Development Bank, Citigroup Inc. and Credit Suisse AG have committed $1.53 billion to finance the buyout, according to the statement.
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