China's Focus Media considers Nasdaq delisting

Digital media company receives US$3.5 billion buyout bid from consortium, amid recent spate of attempted acquisitions of Chinese firms whose valuations have been depressed by accounting practices concerns.

Chinese digital media company Focus Media is planning to delist itself from the Nasdaq stock exchange, in a deal potentially worth US$3.5 billion offered by a group of equity fund managers.

According to a press release Monday, the company said that it had received a "going private" proposal from a consortium made up of China's top fund companies including CITIC Capital Partners, FountainVest Partners and China Everbright, and United States buyout fund Carlyle Group.

The group of investors are proposing a bid of US$27 in cash per American depositary receipt, or US$5.40 in cash for each of their ordinary shares.  In the statement, Focus Media said it had formed a committee to evaluate the deal.

The proposed transaction will be financed with a combination of debt and equity capital, and banks involved in discussions comprise Citigroup Global Markets Asia, Credit Suisse's Singapore Branch, and Singapore's DBS Bank.

Focus Media operates digital advertising screens which can be found in offices, elevators and supermarkets across China. It reported a 85 percent rise in net profit of US$37.9 million the first quarter of 2012.

In a report Wednesday, China Daily Asia Pacific noted that the company's shares were hit hard last year--dropping by close to 40 percent--following a negative review by short-selling firm Muddy Waters. It had accused  Focus Media of overstating the number of TV screens it had in its advertising network and overpaying for acquisitions to mask its losses. 

The move to go private could benefit the company as Chinese companies in foreign exchanges are "far too devalued" as a result of the controversies surrounding the companies, said Wang Yaoji, deputy director of Fudan University's Securities Research Institute, in the article.

It cited data compiled by Bloomberg that the shares of the 180 Chinese companies listed on foreign exchanges since the start of 2010 are trading at 21 percent below their offer price on average.

Going private could also allow Focus Media to work on long-term goals to sustain its future prospects, instead of generating more revenue in the short run, Wang noted.

From April 2010 to May this year, 14 Chinese firms have delisted from U.S. exchanges, according to Roth Capital Partners, with a further 17, including Focus Media, attempting to do the same, noted China Daily Asia Pacific.