BEIJING, Nov 24 (Reuters) - The head of Focus Media Holding Ltd “won’t tolerate rumours” about his firm, which stands accused of vastly overstating its assets and overpaying for acquisitions, the China Business News reported on Thursday.
The Chinese digital advertising company was accused this week by a short-sell research firm of widespread fraud, including writing down $1.1 billion out of $1.6 billion in acquisitions since 2005, exceeding the company’s enterprise value by a third.
Focus Media’s Nasdaq-traded ADRs fell 40 percent on Monday before recovering somewhat on Tuesday after the company denied the charges and said chief executive Jason Jiang would buy back $11 million of its shares.
“We welcome criticism, but won’t tolerate rumours,” Jiang said in an interview with China Business News. He called the report by short-seller Muddy Waters a “sudden sniper attack” on his company.
Muddy Waters began coverage of Focus Media with a “strong sell” rating, saying the Shanghai-based firm had inflated the number of its LCD advertising display screens.
Focus Media — which operates advertising screens in offices and apartments, elevators and supermarkets across China — denied the report, saying the analysis did not take into account digital screens and LCD picture frame devices.
The report sparked late nights of tense conference calls and planning meetings with senior Focus Media executives and with investors, Jiang told the newspaper.
“We can’t prevent the outside world from calling things into question. And even more, can’t guarantee that the share price won’t tumble further,” Jiang said.
“But having weathered a storm, we won’t stray from our focused strategy, and the snipers will make our business strategy all the more resolute.”
Earlier this week, Focus Media said it would recommend that an audit committee engage a third-party survey firm to conduct an independent accounting of its LCD screens, poster frame and in-store networks to confirm its claims.
Jiang acknowledged problems ahead for shareholders. “Some investors in Focus Media will encounter losses, and they will have expectations to make up for it,” he said.
But, he insisted, “in the coming three years, we will focus on our core business and realise natural internal growth.”
Focus Media is the latest target of Muddy Waters, which has issued a string of bearish notes on Chinese companies listed in North America.
In June, Muddy Waters accused Canada’s Sino-Forest Corp of massive fraud.