Focus Media Sued by Investor Over Carlyle-Led Buyout

Focus Media Holding Ltd., the Shanghai-based advertising company, was sued with its top management by a U.S. pension fund seeking to stop a buyout led by Carlyle Group LP.

Iron Workers Mid-South Pension Fund filed a complaint in federal court in San Francisco alleging the buyout price is unfair to shareholders and the company’s proxy statement contained false and misleading information.

“In agreeing to the proposed transaction, the board acted in an unfairly prejudicial and oppressive manner by failing to conduct a full and fair sales process designed to secure the best value available for the company’s shareholders,” according to the complaint filed yesterday.

Focus Media agreed Dec. 19 to be bought for $3.7 billion by a group of investors led by Carlyle. The company operates networks of advertising display panels in office buildings, supermarkets and other venues, and began trading on the Nasdaq in 2005. Focus Media, which short-seller Muddy Waters LLC said in 2011 had overstated its network, joins other Chinese companies seeking to withdraw from U.S. exchanges after corporate governance concerns cut valuations.

SEC Probe

The U.S. Securities and Exchange Commission is probing Focus Media’s purchase and resale of companies including Allyes Online Media Holding Ltd., a Chinese online ad agency, Focus said in a Jan. 18 U.S. regulatory filing. The company said it was cooperating with the probe.

The defendants in the lawsuit include Focus Media’s chief executive officer, chief financial officer, directors and Giovanna Parent Ltd., the acquiring entity. After the buyout, the parent entity will be beneficially owned by Focus Media’s chief executive and affiliates of and funds managed by Giovanna Investment Holdings Ltd., which is owned and controlled by Carlyle Asia Partners III and others, the company said in a Dec. 19 press release.

The merger agreement contains “onerous and preclusive provisions” which will “serve to unreasonably deter and discourage superior offers,” the pension fund said in its complaint. The lawsuit, filed for the pension fund by San Diego, California-based Robbins Arroyo LLP, seeks to represent other Focus Media shareholders in its request for a court order finding the merger agreement unenforceable. The transaction is expected to be completed in the second quarter, Focus Media said in December.

Shares Sale

The iron workers pension fund sold 600 shares of Focus Media on Jan. 24, according to the complaint.

Jing Lu, a Shanghai-based investor relations executive for Focus Media, said the company had no comment on the lawsuit.

Randall Whitestone, a Carlyle spokesman, also declined to comment on the case.

Focus Media said last year that the allegation by Muddy Waters about its network “lacks credibility.”

The case is Iron Workers v Focus Media, 13-827, U.S. District Court, Northern District of California (San Francisco).

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