A second chance
Focus Media’s homecoming has somehow survived China’s market meltdown. The Chinese advertising group is making a second attempt at a backdoor listing in Shenzhen after an insider-trading investigation thwarted its previous effort. Yet despite the stock market slump, Focus Media still has a valuation of 45.7 billion yuan ($7.2 billion). Other U.S.-listed Chinese companies eyeing a return to the mainland will need to be more realistic.
Focus Media seemed to have completed its journey from unloved U.S.-listed orphan to Chinese investment darling in June, when it agreed a reverse takeover of a Shenzhen-listed company called Jiangsu Hongda New Material. But that plan faltered when Hongda’s chairman resigned amid a probe into securities laws violations.
Now the Shanghai-based advertising company is trying to reverse itself into Hedy Holding, a $648 million communications equipment maker also listed in Shenzhen. In an identical deal Hedy will issue new shares worth 39.9 billion yuan to buy Focus Media, and pay for the rest with a 5 billion yuan private placement and an asset swap.
For Focus Media Chairman Jason Jiang, completing the deal will be a double victory. The current valuation is almost twice what Jiang and private equity funds including Carlyle paid to take the then Nasdaq-listed company private two years ago after it became a target for short-sellers. But even more amazing is that the transaction puts the same value on Focus Media’s as the previous deal three months ago. In that period, China’s benchmark CSI index has dropped by more than a third.
Shenzhen investors won’t get to deliver their opinion on Focus Media’s value until the shares start trading. Hedy shares have been suspended since April, missing a chunk of the boom and subsequent collapse.
Yet for the two dozen or so U.S.-listed Chinese companies that are looking to take themselves private, Focus Media’s homecoming may not be so easy to replicate. The majority of the proposed take-private deals still have yet to secure equity and debt funding. Shares in Qihoo 360, the largest of the group, currently trade at a 31 percent discount to the $9.9 billion offer from a group led by its chairman and CEO. Despite Focus Media’s defiance of gravity, finding a way back to the Chinese stock market looks less likely than it did a few months ago.