Focus Media Move Caps Tough Year For China 分众传媒为中国艰难的一年画上句号
This year will go down as one that most US-listed Chinese companies would like to forget, and now outdoor advertising specialist Focus Media (Nasdaq: FMCN) is giving a suitable send-off for 2012 with word that its plan to privatize and de-list is nearing completion. This latest development followed earlier word that one of the investors planning to provide $200 million to help fund Focus Media’s plan had backed out of the deal due to concerns about inadequate returns. (previous post) Now media are reporting that Focus has just signed the last agreement it will need to complete the deal, which will formally be carried out by a company called Giovanna Acquisition Ltd. (Chinese article)
Companies helping to fund the buy-out include US private equity giant Carlyle (Nasdaq: CG) as well as several Chinese firms, and the buy-out price of $27.50 per American Depositary Share (ADS) represents an 18 percent premium to Focus’ last trading price before the deal was first announced in August. This particular buy-out would value Focus at about $3.7 billion, making the deal the largest in a series of similar management-led buy-outs by US-listed Chinese firms.
Interestingly, Focus’ shares ended Thursday trade at $25.74, meaning investors still have some doubt about whether this deal will close. But based on previous experience, I do expect we’ll finally see it close and for Focus’ shares will de-list a short time later in the second quarter.
This deal nicely summarizes the tumultuous year that US-listed Chinese companies saw in 2012, as investors avoided the stocks for much of the time following a series of accounting scandals and short seller attacks that began in spring 2011. The long winter for Chinese stocks saw IPOs slow to a crawl, with only 2 major firms — online discount retailer Vipshop (NYSE: VIPS) and commercial-oriented social media site YY (Nasdaq: YY) completing new offerings for the year. (previous post)
Meantime, a number of other companies decided their shares were undervalued and de-listed, led by online entertainment specialist Shanda Interactive, one of China’s earliest Internet companies to list. While the gloom lasted for most of the year, it seemed to be lifting in November when YY made its offering and saw its shares rise steadily afterwards.
I previously predicted we might see a small flurry of 2 or 3 additional IPOs by the end of the year, with names like online video specialist Xunlei and online clothing seller Vancl perhaps rushing to market after waiting more than a year to make offerings. But at this point it’s quite clear the companies couldn’t make preparations in time, and we won’t see anymore new offerings until the first quarter of 2013.
In a way, perhaps it’s appropriate that Focus Media’s privatization will probably become the last major headline in the nearly 2 year confidence crisis, since this kind of retreat seems like a more appropriate ending to a story that has wiped out billions of dollars in value for US-listed China stocks. Meantime, everyone will wait to see if the recent nascent recovery for the sector will really lead to a sustainable spring in 2013.
Bottom line: Focus Media’s finalization of its privatization plan marks a suitable end to the confidence crisis for US-listed China stocks, with a rally likely in the first part of 2013.
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