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Out of focus

14 August 2012 By Wei Gu

U.S. investors should take heart from a $3.5 billion Chinese-led buyout. Some of the same people who brought Focus Media 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 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, 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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