Focus Media Holding Ltd (分眾傳媒), a Chinese advertising company targeted by short-seller Carson Block, received a bid from private-equity firms, including Carlyle Group LP, in what would be the country’s largest leveraged buyout.
The bidders made a “non-binding” offer of US$27 for each American depositary receipts (ADR), the Shanghai-based company said on Monday in a statement. The offer is 15 percent more than Focus’ closing price on Friday and above the level when Block’s Muddy Waters LLC began targeting it in November.
The bidders, which include Citic Capital Partners (中信資本) and Focus Media chief executive officer Jason Nanchun Jiang (江南春), made the proposal that values the company at US$3.5 billion. A successful deal would see the advertising group join Chinese companies such as Fushi Copperweld Inc (傅氏國際) and Winner Medical Group Inc (穩健醫療) in backing moves to go private after short sellers raised accounting and corporate governance concerns.
The offer “is another example of how Chinese are taking more and more of their companies private,” Sachin Shah, a Jersey City, New Jersey-based special-situations and merger-arbitrage strategist at Tullett Prebon PLC, said by telephone. “The US market isn’t properly valuing them and doesn’t know if the offer price is right, allowing the management of the companies to possibly win in getting the assets at lower valuations.”
Focus Media’s ADR climbed 8.9 percent to US$25.45 on Monday after jumping 7.6 percent on Friday. The company has about 129.3 million ADRs outstanding.
Focus Media’s bullish options trading jumped to the highest level since November on Friday. More than 29,000 calls to buy the stock changed hands, five times the four-week average, compared with 7,635 for puts to sell.
Focus Media traded at US$25.50 on Nov. 18. last year, before Muddy Waters recommended betting against the stock. The stock plunged as much as 66 percent the next trading day after Block’s firm issued a strong sell recommendation. Muddy Waters in February issued a fifth report that said Focus Media overstated its ad network.
In addition to Citic Capital and Washington-based Carlyle, the bidders for Focus Media include FountainVest Partners (方源資本), CDH Investments (鼎暉投資) and China Everbright Ltd (光大控股), the company said in the statement. Jiang is Focus Media’s biggest shareholder with a stake of about 18 percent, according to data compiled by Bloomberg.
“Focus Media is very dominant in the public-display advertising space in China and has geographically diversified itself throughout China’s big cities,” said Timothy Ghriskey, chief investment officer of Solaris Group LLC, a New York-based firm that sold its stake in the company a year ago. “The PE [private-equity] firms are seeing a bargain here.”
“The company’s board of directors has formed a committee of independent directors to consider the proposed transaction,” Focus Media said in the statement.
The investor group plans to use a combination of debt and equity to finance the purchase.
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