Focus Media gets $3.5 billion buyout offer from PE group

Mon Aug 13, 2012 1:23pm EDT

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(Reuters) - Chinese display-advertising provider Focus Media Holding Ltd FMCN.O said it received a bid from a consortium that includes its chief executive and private equity firm Carlyle Group that values the company at $3.49 billion.

Shortseller Muddy Waters, which has in the past alleged that Focus Media overstated its assets and overpaid for acquisitions, welcomed the offer, saying the firm was better off in private hands.

The offer of $27 per American depositary share represents a premium of 15.5 percent to Focus Media stock's Friday close. Shares of the company rose 8 percent to $25.26 on Monday on the Nasdaq, but they were still well short of the bid price.

Shares of several Chinese companies have been hammered in the recent past after allegations of accounting scandals by shortsellers such as Muddy Waters and Citron Research.

"The markets are far better off if a few deep-pocketed investors own Focus Media instead of mutual funds and other public shareholders," Muddy Waters's Carson Block told Reuters.

Focus Media has repeatedly denied Muddy Waters' accusations that the company overstated its assets and overpaid for acquisitions.

The offer for Focus Media is the latest in a string of management-led buyouts of U.S.-listed Chinese companies, as executives look to take advantage of big discounts to peers on the Hong Kong and Chinese stock markets.

Fushi Copperweld Inc FSIN.O, China TransInfo Technology Corp CTFO.O and Winner Medical Group Inc WWIN.O have accepted go-private offers from their managements.

Shares of Focus Media, which operates flat-panel display screens in commercial buildings, trade at a multiple of 8.3 times their forward earnings. This is at a deep discount to the stock's five-year historical average price-to-earnings multiple and the industry average, according to Thomson Reuters StarMine.

"Focus Media is under a lot of valuation pressure because of controversies surrounding the company," T.H. Capital Research analyst Tian Hou told Reuters, adding that a successful deal will help other Chinese companies regain credibility among U.S. investors.

The Focus Media deal triggered a 7 percent jump in shares of New Oriental Education & Technology Group Inc (EDU.N), which Muddy Waters has accused of lying about its network and cash balances.

"We think the (Focus Media) stock has been undervalued trading at high single-digit PE when the earnings growth is expected to be above 20-25 percent," Macquarie Securities analyst Jiong Shao told Reuters.

"Focus Media has a great business, generates tons of cash, pays dividend and buys back its shares."

DEAL DETAILS

The consortium making the offer for Focus Media also includes CITIC Capital Partners, FountainVest Partners, CDH Investments and China Everbright Ltd.

The company's board has formed a committee of independent directors to consider the offer.

CEO Jason Nanchun Jiang held about 18 percent of the company's outstanding shares as of December 31, according to its annual report. He bought $11 million of the company's ADSs in November.

The transaction will be financed with a combination of debt and equity capital.

The proposal letter dated August 12 said the consortium has been in discussions with Citigroup Global Markets Asia Ltd, Credit Suisse AG and DBS Bank Ltd about financing the debt portion.

The banks have indicated to certain of the consortium members that they are highly confident of their ability to fully underwrite the debt financing, the company said.

(Reporting by Sruthi Ramakrishnan in Bangalore, Additional reporting by Himank Sharma; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)

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