* Agreement reached for $27.50 per American Depositary Share
* Has backing from Chinese and Western banks
* Muddy Waters had challenged the company's financial
By Greg Roumeliotis and Neha Alawadhi
Dec 19 Display-advertising provider Focus Media
Holding Ltd said on Wednesday it had agreed to be
acquired by a consortium led by Carlyle Group LP for
about $3.7 billion in what would be the largest ever private
equity deal in China.
Leveraged buyouts backed by foreign private equity firms
have been few and far between in China, a country famous for its
capital controls and restrictive regulations. At least two
thirds of Focus Media shareholders must now approve the deal.
Focus Media, which operates advertising screens in offices,
elevators and supermarkets across China, has faced persistent
allegations from short-seller Muddy Waters that it overstated
its assets and overpaid for acquisitions.
This did not faze Carlyle and some of China's top private
equity funds, which made an offer for the company in August
together with the chief executive of the company, Jason Nanchun
The offer of $27.50 per American Depositary Share represents
a premium of 15 percent over Tuesday's closing price and a 17.6
percent premium over the company's closing price on Aug. 10, the
last trading day before a takeover bid was announced.
Focus Media ADSs jumped as high as $26.17 on the news and
ended trading on Wednesday up 6.7 percent at $25.52.
"Based on our well-documented conclusions of fraud and
self-dealing, investors are clearly better off with Focus Media
no longer participating in US capital markets. We note that many
pension funds and endowments will presumably be the new owners
of this company when the deal closes," Muddy Waters said in a
A spokesman for Carlyle, which counts pension funds and
endowments among its investors, declined to comment.
Chinese conglomerate Fosun International Ltd,
which together with Jiang owns about 35.5 percent of Focus
Media, backs the deal and will become part of the consortium
taking over the company once the transaction is complete, Focus
The consortium also includes FountainVest Partners, CITIC
Capital Partners and China Everbright. The deal is expected to
close during the second quarter of 2013, Focus Media said.
Focus Media also said on Wednesday it had suspended its
previously announced share repurchase program and dividend
policy as part of the agreement.
Carlyle, a pioneer of private equity in China with about $4
billion invested in more than 60 deals in the country by last
August, is not a stranger to controversy when it comes to
financial reporting of the Chinese companies it invests in.
It seized the headlines last year after fraud allegations
were levied at China Forestry Holdings Co Ltd and
China Agritech Inc in high profile accounting-related
cases, dealing a blow to the Washington D.C.-based firm's image.
China Forestry's shares are still suspended while China Agritech
was delisted from Nasdaq in May 2011.
Private equity funds have been picking over hundreds of
Chinese firms listed in the United States, looking for viable
takeover targets, but until now the deals have mostly been below
$1 billion due to difficulties in getting financial backing.
Funding for buyouts of Chinese companies is done through
offshore holding companies but many banks will not finance such
deals due to the risk of non-payment.
In this case, however, Bank of America,
Citigroup, Credit Suisse, UBS and Deutsche Bank
have agreed to join Chinese banks in providing $1.53
billion in debt for the transaction.
"There have been several suspect companies that have gone
private with bank support (in China), but entirely from Chinese
banks and mostly from a single Chinese policy bank, China
Development Bank. This time we see Western Banks. That is a
surprising and ominous development," said hedge fund manager
John Hempton of Sydney, Australia-based Bronte Capital, who has
been blogging prolifically about Focus Media.
Citigroup and Credit Suisse are the lead financial advisors
for Carlyle's consortium.