Focus Media [Photo: Live Trading News]
The board of the Chinese digital advertising company Focus Media Holding Ltd, a long-time target of short-sellers, accepted a buyout plan on Wednesday from private equity firms to make the company private.
If completed, the transaction - valued at $3.7 billion, or $27.50 per American depositary share - will be the biggest such deal in China.
The transaction is now expected to close in the second quarter of 2013, the company said. But it's subject to various conditions, including approval from at least two-thirds of shareholders.
The Nasdaq-listed company, which operates display advertising screens in offices and commercial spaces in China, has been the target of accusations by Muddy Waters LLC, a short-selling firm, that it overstates its assets.
However, the accusations failed to deter a consortium - led by China's top private equity firms such as FountainVest Partners Co Ltd and the US buyout firm Carlyle Group LP - to take the company private.
The proposed takeover bid is a 17.6 percent premium over the company's closing price on Aug 10, the last trading day before the deal was announced, Focus Media said in a statement.
The offer is also 15 percent above Tuesday's closing price - the day before the board approved the plan - when shares closed up 6.7 percent at $25.52 per American depositary share
The Chinese conglomerate Fosun International Ltd, which together with Focus Media CEO Jiang Nanchun owns an about 35.5 percent stake in the company, backed the deal and will become part of the consortium taking over the company once the transaction is complete.
Focus Media owns about 170,000 flat-panel displays in about 90,500 commercial buildings in more than 90 cities in China.
Muddy Waters accused the company of overstating the number of TV screens it owns, and of overpaying for acquisitions to mask its losses.
Focus Media lashed back at the allegations, but a Muddy Waters report issued in November last year helped depress the value of the company's shares by nearly 40 percent.
After the takeover bid was announced, Muddy Waters said it believes 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," Bloomberg News cited an announcement from Muddy Waters as saying.
"Should Focus be unable to meet its sizable debt obligations, we encourage regulators and fund investors to ask hard questions about the rationale and due diligence process underlying this purchase," Muddy Waters said.
A number of foreign lenders will finance the transaction.
Bank of America Corp, Citigroup Global Markets Asia Ltd, Credit Suisse AG Singapore Branch and DBS Bank Ltd, among others, have agreed to join Chinese banks in providing $1.53 billion in debt for the deal.
"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," Reuters quoted hedge fund manager John Hempton of Australia-based Bronte Capital as saying. Hempton has written online about Focus Media since August.
While the deal is likely to wipe out losses caused by the Muddy Waters allegations, the privatization marks the third such move since the exits of Alibaba Group Holding Ltd and Shanda Interactive Entertainment Ltd, and is likely to trigger a domino effect, experts said.
"More Chinese companies may follow suit and flee the unfavorable US stock market," said Bao Fan, chief executive officer of China Renaissance Partners, an investment bank in Beijing.
He said Hong Kong is likely to be the companies' next destination, due to its proximity to the Chinese mainland, both geographically and culturally.