Focus Media insider buyout gives investors relief
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
By Wei Gu
HONG KONG, Aug 14 (Reuters Breakingviews) - U.S. investors should take heart from a $3.5 billion Chinese-led buyout. Some of the same people who brought Focus Media (FMCN.O) public in 2005 now want to take it private. They might want to re-list the shares later in China, out of the focus of U.S. shorts-sellers, where the provider of advertising screens in public places might command a higher valuation.
Short-seller Muddy Waters alleged accounting irregularities in 2011. The share price fell from $25 to $15 a share in a day. They did not fully recover - the price was $22 two days before the $27 a share offer was announced. But the offer, and in particular the insiders’ participation - founder and chief executive Jason Jiang is leading the buyout - gives the company credibility.
The buyout would also be a round trip for Credit Suisse. It underwrote the initial public offering with Goldman Sachs (GS.N) and is one of the banks that has agreed to back the private equity buyers. In addition, the ex-Goldman bankers who brought it public now work at FountainVest, part of the buyers’ consortium. U.S. private equity group Carlyle (CG.O), also a member, sold one of its portfolio companies to Focus in 2006.
The offer needs the backing of two thirds of the shareholders. Jiang owns 18 percent and Shanghai conglomerate Fosun International, which owns 17 percent, is likely to go along, especially as it bought at a 70 percent discount to the offer price. Fosun said the offer is attractive and it won’t support any competing proposals without Jiang’s participation.
The price may be lower than it would have been without the allegations, but it looks reasonably generous at eight times 2012 estimated EBITDA, not bad for a business with diminishing growth prospects in a saturated market.
Still, the initial offer may not be the last. The 24 percent premium to the undisturbed price is less than the 46 percent premium Alibaba paid when it went private earlier this year. Yet for investors who have seen Focus Media down 60 percent since 2007, now may be a good time to take the money.
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- Focus Media Holding said on Aug. 13 its board has received a proposal letter from affiliates of FountainVest Partners, The Carlyle Group, CITIC Capital Partners, CDH Investments and China Everbright Limited and Jason Nanchun Jiang, Chairman of the Chinese advertising company.
- The group offered $27 in cash per American depositary share, valuing the shares at a 15 percent premium over the last trading price. The stock had risen about 13 percent in the last two trading days prior to the announcement.
Jiang is the largest shareholder, with 18 percent of shares outstanding. The second largest shareholder, Fosun International, also a Shanghai-based company, owns 17 percent.
- Fosun said in a statement that it believes the proposal represents an attractive option, adding that it does not anticipate supporting any competing proposals which do not include Jiang as a participant.
- The buyers intend to finance the acquisition with debt and equity. Citigroup, Credit Suisse and DBS Bank Ltd. have provided Carlyle, FountainVest and CITIC Capital Partners with a letter indicating that their confidence in the ability to fully underwrite the debt financing for the deal.
- Statement [ID:nPnCN56315]
- Reuters: Carlyle, China PE firms bid $3.5bln for Focus Media [ID:nL4E8JD3O0]
Mud spreads [ID:nL4E7MM1EU] - For previous columns by the author, Reuters customers can click on [GU/]
(Editing by Edward Hadas and David Evans)
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