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Focus Media gets US$3.5b buyout offer

The display-advertising provider would become the biggest Chinese company to delist itself on a US stock market, if the deal is successful.

PUBLISHED : Tuesday, 14 August, 2012, 2:25am
UPDATED : Tuesday, 14 August, 2012, 9:40am

Chinese display-advertising provider Focus Media Holding  plans to go private, making it the biggest Chinese company to delist itself on a US stock market.

The offer comes from a consortium that includes Focus Media's chief executive Jason Nanchun Jiang and private equity firms Carlyle Group and Citic Capital Partners, a Beijing-backed private equity firm.

The US$27 per American depositary share offer values Focus Media at US$3.49 billion, based on its shares outstanding, according to Thomson Reuters data.

The consortium  includes private equity firms FountainVest Partners and CDH Investments, as well as China Everbright, Focus Media said.

The price is at a premium of 15.5 per cent over Focus Media stock's Friday close.

Shares in the company, which had a market value of US$3.02 billion as of Friday's close,  touched a high of US$26.45 in early  US trading on Monday. 

A person familiar with the situation told the South China Morning Post that Focus Media was quitting the US because it doesn't think US investors understand its business model well enough, and therefore its shares aren't likely to be valued fairly.

Several Chinese firms have run into regulatory problems in the US, leading some executives to  conclude that the US regulator has singled them out for  scrutiny. Moreover,  investor enthusiasm for such counters has cooled.

And some companies, such as Focus Media, have been targeted by short sellers that have driven their share prices lower in the hope of profiting from the falls.

Late last year, two Chinese companies, Harbin Electric and Shanda Interactive Entertainment, decided to delist from the US stock market.

Analysts have said that low price-earnings ratios often lead to high financing costs for the Chinese companies because that reflects the low valuation investors put on the company's businesses.

In the case of Focus Media, market watchers said the company may want to relist itself in a location where the majority of its public shareholders agree with and understand its business model better.

The company was attacked by short seller Muddy Waters in November  for accounting irregularities and flaws in disclosure. Focus Media denied all the allegations.

Focus Media operates flat-panel display screens in commercial buildings in more than 100 cities on the mainland and also has screens in elevators in 35 cities and screens in supermarkets and convenience stores, according to regulatory filings.

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

The CEO held about 18 per cent of the company's outstanding shares as of December 31, according to the company's annual report.

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

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

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

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