Focus Media accepts US$3.7b buyout offer

Leveraged takeover and delisting of the Shanghai-based display-advertising provider represents China's biggest private equity deal

PUBLISHED : Friday, 21 December, 2012, 12:00am
UPDATED : Friday, 21 December, 2012, 4:26am

Focus Media has agreed to go private in a US$3.7 billion acquisition led by its founding chairman, global investment firm Carlyle Group and leading mainland private equity companies.

This transaction would be the largest leveraged buyout deal in China. It is expected to close in the second quarter of next year, subject to the affirming vote from at least two-thirds of Focus Media shareholders.

The Shanghai-based display-advertising services giant yesterday accepted an offer of US$27.50 per American depositary share (ADS). This represents a 17.6 per cent premium over the Nasdaq-listed company's closing price of US$23.38 per ADS on August 10, which was the last trading day before the proposed takeover was announced. The final offer was higher than the earlier bid of US$27 per ADS.

The buying consortium includes Focus Media chairman and chief executive Jason Nanchun Jiang; the affiliates of and funds managed by the Carlyle-owned Giovanna Investment Holdings; Gio2 Holdings, which is controlled by FountainVest China Growth Capital Funds; Power Star Holdings, owned by Citic Capital China Partners II, and State Success, controlled by affiliates of China Everbright Structured Investment Holdings.

Shanghai conglomerate Fosun International will also become a beneficial owner after the deal is completed. Fosun and Jiang own a combined 35.5 per cent of Focus Media's outstanding shares.

A group of Western and Chinese banks have committed to providing US$1.525 billion in debt financing for the transaction. The banks providing the financing include Bank of America, Citibank, Deutsche Bank, Credit Suisse, China Development Bank, China Minsheng Banking Corp and ICBC International Capital.

Focus Media would become the largest Chinese company to delist from a US stock exchange when the deal closes.

Focus Media's plan to delist was prompted by its dispute with short seller Muddy Waters, which had accused it of fraudulently overstating by about 50 per cent the number of screens in its digital display-advertising network across the mainland.

A statement released by Muddy Waters yesterday said that "investors are clearly better off with Focus Media no longer participating in US capital markets".

Muddy Waters has built a reputation on focusing on the short selling of Chinese companies.

The mainland's advertising industry is expected to significantly improve next year, which should augur well for Focus Media's return as a privately held firm.

New York-based research firm eMarketer has predicted that mainland China will become the world's second-biggest advertising market behind the US. It forecast total advertising spending on the mainland to reach US$52.9 billion next year, compared with US$46.3 billion estimated this year.