Focus Media Buyout Lawsuit Dropped by U.S. Pension Fund

An investor in Focus Media Holding Ltd. dropped a lawsuit seeking to block the Shanghai-based advertising company’s $3.7 billion buyout by Carlyle Group LP.

Iron Workers Mid-South Pension Fund ended the suit without prejudice, meaning it can be refiled, according to a filing yesterday in federal court in San Francisco. The pension fund didn’t say why the complaint was dropped. A hearing on Focus Media’s request to dismiss the case had been set for April 1.

The pension fund alleged that Focus Media’s proxy statement omitted or misrepresented information about an alleged unfair sales process that locked out other buyers and undervalued the company in violation of the 1934 Securities Exchange Act.

Focus Media said the law’s disclosure requirements don’t apply to foreign private issuers and the lawsuit should be dismissed, according to a court filing. The company is a Cayman Islands corporation with executive offices in Hong Kong and operations in China. Its American Depositary Shares trade on Nasdaq.

Disclosure Requirements

“In this instance, foreign issuers are able to solicit the investment of United States residents through our stock exchanges and yet not be subject to the same disclosure requirements as other U.S. publicly traded companies,” said Steve Oddo, a partner at Robbins Arroyo LLP representing the pension fund, in an e-mail. “The company is able to evade regulations that govern communications with shareholders, and shareholders are left unprotected.”

Focus Media agreed Dec. 19 to be acquired by a group of investors led by Carlyle in China’s biggest leveraged buyout. The company operates networks of advertising display panels in office buildings, supermarkets and other venues in China, and began trading on the Nasdaq Stock Market in 2005. The transaction is expected to be completed in the second quarter, Focus Media said in December.

The pension fund alleged that Focus Media’s board didn’t conduct a full and fair sale process to get the best value for shareholders.

The case is Iron Workers Mid-South Pension Fund v. Focus Media Holding Limited, 13-00827, U.S. District Court, Northern District of California (San Francisco).