Focus Media goes down privatization path
By Ding Yining |
August 31, 2012, Friday
|
Print Edition
Print Edition
FOCUS Media, a Shanghai-based outdoor advertising company, said it has received a non-binding US$3.5 billion buyout offer from private equity firms and senior executives.
The US$27-a-share bid is at a 15 percent premium to the New York shares, which traded at US$23.38 on August 10, the last trading day before the deal was announced.
The offer comes from Carlyle, CDH Investment, FountainVest Partners, Citic Capital Partners, China Everbright Ltd, and affiliated companies of Focus Media founder and Chairman Jason Jiang.
The offer is part of a series of privatization deals among companies whose share prices are deemed undervalued. This year, 12 US-listed Chinese firms have announced privatization plans, according to venture capital research firm ChinaVenture.
"It's an active choice for Focus Media at a time when most US-listed Chinese companies are facing tighter regulatory scrutiny," said Zheng Zhixing, a researcher with private equity research group Zero2IPO.
Other privatizations
Earlier this year, Shanghai-based Shanda Interactive Entertainment Ltd completed a privatization plan and stopped trading on Nasdaq. Alibaba Group delisted its Hong Kong-listed B2B unit and repurchased a stake owned by Yahoo to consolidate the company.
Focus Media said it has formed a special committee to consider the proposed buyout and refused to make further comment.
Jiang currently is the largest shareholder in the company, with 17.9 percent, and Shanghai-based private conglomerate Fosun International is the biggest institutional stakeholder with about 18 percent.
Last November, Focus Media shares plunged nearly 40 percent after short-seller Muddy Waters put a "strong sell" rating on the stock, saying the company had inflated the number of screens in its LCD network by about 50 percent and deliberately overpaid for acquisitions.
Focus Media denied the allegations.
The company has been in the throes of changing its business strategy.
That process began last year when the company started upgrading its LCD screens in first-tier cities, including Shanghai, Beijing and Guangzhou, to turn them into interactive facilities imparting discount information to consumers.
The new screens have appeared in 20 domestic cities.
More recently, Focus Media launched a partnership with Alibaba which aims at allowing smartphone users to pay for discount deals through swiping at the LCD screens.
Eying consumer market
Jiang said during a conference call with analysts last week that the collaboration with Alibaba is a trial project in the company's quest to enter the booming mobile Internet market.
In the past few years, Focus Media has gone after revenue growth by installing its LCD ad screens in office buildings in lower-tier cities.
In a sense, Focus Media is moving toward the consumer market while retaining its traditional advertisers' base.
"Focus Media took advantage of a relatively weak market and aims to regain control of the company's long-term strategy," said ChinaVenture's analyst Feng Po.
A week after the privatization proposal was announced, Deutsch Bank, Morgan Stanley and other investment banks issued target prices of between US$38 and US$40 for the stock - higher than Focus Media's trading range during the past year.
Zero2IPO's figures also showed that most media companies listed on the domestic stock markets have average price-to-earnings ratios of about 30, much higher than Focus Media's 12.
Sammy Pollack, an independent trader writing on online stock community Seeking Alpha, said he expects Beijing-based online retailer Dangdang and social network operator Renren.com to be the next companies to follow Focus Media down the privatization route.
Both stocks have been trading under their offer prices since they began trading on the Nasdaq.
But ChinaVenture's Feng pointed out that neither company is under much pressure to tinker with its business strategy because the Internet industry is still booming in China and their share prices should improve if overall market conditions turn for the better.
The US$27-a-share bid is at a 15 percent premium to the New York shares, which traded at US$23.38 on August 10, the last trading day before the deal was announced.
The offer comes from Carlyle, CDH Investment, FountainVest Partners, Citic Capital Partners, China Everbright Ltd, and affiliated companies of Focus Media founder and Chairman Jason Jiang.
The offer is part of a series of privatization deals among companies whose share prices are deemed undervalued. This year, 12 US-listed Chinese firms have announced privatization plans, according to venture capital research firm ChinaVenture.
"It's an active choice for Focus Media at a time when most US-listed Chinese companies are facing tighter regulatory scrutiny," said Zheng Zhixing, a researcher with private equity research group Zero2IPO.
Other privatizations
Earlier this year, Shanghai-based Shanda Interactive Entertainment Ltd completed a privatization plan and stopped trading on Nasdaq. Alibaba Group delisted its Hong Kong-listed B2B unit and repurchased a stake owned by Yahoo to consolidate the company.
Focus Media said it has formed a special committee to consider the proposed buyout and refused to make further comment.
Jiang currently is the largest shareholder in the company, with 17.9 percent, and Shanghai-based private conglomerate Fosun International is the biggest institutional stakeholder with about 18 percent.
Last November, Focus Media shares plunged nearly 40 percent after short-seller Muddy Waters put a "strong sell" rating on the stock, saying the company had inflated the number of screens in its LCD network by about 50 percent and deliberately overpaid for acquisitions.
Focus Media denied the allegations.
The company has been in the throes of changing its business strategy.
That process began last year when the company started upgrading its LCD screens in first-tier cities, including Shanghai, Beijing and Guangzhou, to turn them into interactive facilities imparting discount information to consumers.
The new screens have appeared in 20 domestic cities.
More recently, Focus Media launched a partnership with Alibaba which aims at allowing smartphone users to pay for discount deals through swiping at the LCD screens.
Eying consumer market
Jiang said during a conference call with analysts last week that the collaboration with Alibaba is a trial project in the company's quest to enter the booming mobile Internet market.
In the past few years, Focus Media has gone after revenue growth by installing its LCD ad screens in office buildings in lower-tier cities.
In a sense, Focus Media is moving toward the consumer market while retaining its traditional advertisers' base.
"Focus Media took advantage of a relatively weak market and aims to regain control of the company's long-term strategy," said ChinaVenture's analyst Feng Po.
A week after the privatization proposal was announced, Deutsch Bank, Morgan Stanley and other investment banks issued target prices of between US$38 and US$40 for the stock - higher than Focus Media's trading range during the past year.
Zero2IPO's figures also showed that most media companies listed on the domestic stock markets have average price-to-earnings ratios of about 30, much higher than Focus Media's 12.
Sammy Pollack, an independent trader writing on online stock community Seeking Alpha, said he expects Beijing-based online retailer Dangdang and social network operator Renren.com to be the next companies to follow Focus Media down the privatization route.
Both stocks have been trading under their offer prices since they began trading on the Nasdaq.
But ChinaVenture's Feng pointed out that neither company is under much pressure to tinker with its business strategy because the Internet industry is still booming in China and their share prices should improve if overall market conditions turn for the better.
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