On the 13th of August 2012 Focus Media received a go-private proposal
from its founder and a collection of private equity firms.
That was 94 days ago - a bit over three months.
In that time there has been very few announcements from the company.
Second quarter results were announced 22 August. All they said about the deal was as follows:
Announced Receipt of "Going Private" Proposal
On August 13, 2012, the Company announced that its Board of Directors had received a preliminary non-binding proposal letter, dated August 12, 2012, from affiliates of The Carlyle Group , FountainVest Partners, CITIC Capital Partners, CDH Investments and China Everbright Limited and Mr. Jason Nanchun Jiang, Chairman of the Board and Chief Executive Officer of Focus Media, and his affiliates (together, the "Consortium Members"), that proposes a "going-private" transaction (the "Transaction") for $27.00 in cash per American depositary share, or $5.40 in cash per ordinary share. According to the proposal letter, the Consortium Members will form an acquisition company for the purpose of implementing the Transaction, and the Transaction is intended to be financed with a combination of debt and equity capital. The proposal letter states that the Consortium Members have been in discussions with Citigroup Global Markets Asia Limited, Credit Suisse AG, Singapore Branch and DBS Bank Ltd. about financing the Transaction and that these banks have provided certain of the Consortium Members with a letter dated August 11, 2012 indicating that they are highly confident of their ability to fully underwrite the debt financing of the Transaction subject to the terms and conditions set out therein.
The Company's Board of Directors has formed a committee of independent directors (the "Independent Committee") to consider the proposed transaction.
No decisions have been made by the Independent Committee with respect to the Company's response to the Transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law.
On 23 August the company announced that the independent directors had hired advisers
to help them assess any bid. To quote:
SHANGHAI, Aug. 23, 2012 /PRNewswire-Asia/ -- Focus Media Holding Limited ("Focus Media" or the "Company") (Nasdaq: FMCN) today announced that a committee of independent directors of the Company's board of directors (the "Independent Committee") has selected J.P. Morgan Securities (Asia Pacific) Limited ("J.P. Morgan") as its financial advisor and Kirkland & Ellis International LLP ("Kirkland & Ellis") as its legal counsel.
There has been no announcement since.
That is 83 days of nothing. Well not quite nothing - the company announced that they were having an AGM
but did not mention the go-private proposal.
83 days is a long time for there to be no-progress on a deal which had "highly confident" funding. Surely there is some development - positive or negative - to report in that 83 days.
The Focus Media go-private deal is controversial
Even without 83 days of nothing this deal would be controversial. Muddy Waters - the research firm that exposed the fraud at Sino Forest - has been very critical
of Focus Media's accounts.
I have released a many-part series exploring peculiarities in Focus Media's accounts - see Part 1
, Part 2
, Part 3
, Part 4
, Part 5
, Part 6
, Part 7
, Part 8
, Part 9
, Part 10
, Part 11
, Part 12
, Part 13
, Part 14
, Part 15
, Part 16
, and Part 17
My many part series did not prove that the accounts are fraudulent. It did however demonstrate some peculiar things - for instance the company purchased many seemingly unrelated businesses registered in the British Virgin Islands where all of those businesses somehow had the same address at the same lawyers office
. Moreover in at least one instance they closed on the purchase of a business (by purchasing its holding company) before that holding company was even registered.
Here is the rub. Either this deal is real and just very slow
or this deal is a complete show pony whereby insiders are dumping huge amounts of their shares - shares valued on a multiple of earnings from highly peculiar accounts.
In one instance the stock should go to $27 - the take-out price. In the other instance the stock should go to single digits (possibly zero) because it is a show-pony dressed up to extract monies from Western investors.
83 days since the latest news, 94 days since the announcement of the deal. Remember that.
The "Fourth Estate" has not been silent
Progress of this deal is newsworthy. This is the largest leveraged buyout deal ever in China - a watershed for the Chinese private equity business. And the media abhor a vacuum.
There have been two key news stories since the deal was announced. Each has acted to support the stock.
The first story was in Basis Point (an industry magazine) and repeated by Reuters
. To quote Reuters:
Citigroup, Credit Suisse and DBS Bank are leading the three-part buyout financing, which consists of a $950 million to $1 billion term loan, a $200 million to $300 million bridge-to-bond facility and a $450 million cash bridge, Basis Point reported.
The term loan is expected to have a five-year tenor, while the bridge financings will have six- to nine-month maturities, the report added.
The company is looking to put together an underwriter group of six or seven banks and terms of the financing are likely to be finalised in about two to three weeks, Basis Point said.
That story was dated 11 September. They said the deal would take two to three weeks to be finalized.
It is two months now and there is no news. I think we can safely conclude that the Basis Point/Reuters report is wrong at least with respect to the timing.
More recently Prudence Ho and Isabella Steger of the Wall Street Journal said
that Merrill Lynch, Deutsche Bank and UBS were going to help finance the Focus Media deal. That story was sourced to "two people familiar with the transaction". In other words anonymous sources.
Those banks were to be joining the three original banks on the deal (Credit Suisse and DBS). Again sourced to "the people".
These anonymous people were very specific: "the six banks plan to provide a total of $1.65 billion in financing, made up of a cash bridge loan, a long-term loan and a high-yield bond".
The Wall Street Journal story was dated 2 November. One of the Ho/Steger anonymous sources said "the banks will sign the formal financing documents next week at the earliest".
Needless to say that has not happened either.
Has the Wall Street Journal been played?
Good anonymous sources are part of journalism - but any journalist should ensure that they are not being played with self-interested falsehoods by these sources.
It looks awful like Basis Point were played. They published the financing was likely to be finalised in "two to three weeks" and it is now two months. The information could have been good and the timetable slipped - but as there was no follow up from Basis Point it is likely the information was flat false.
It is also possible that Ho & Steger (and the WSJ) have been played as well. It might be true that Merrills, Deutche and UBS have all joined forces to close this deal (in which case the Wall Street Journal has a story). But if not the story is a journalist's train-wreck - and should cast into doubt all the work by these fine journalists.
I started writing what I thought a journalist should do with an anonymous source when the source has been lied to them - but there are people far more versed in journalist ethics than me. But forget the ethical issue - this is for financial newspapers a business issue.
The financial press is the only part of the print media that has managed to establish pay-walls around their content. And for good reason too - reading the financial press is about making money and you can justify paying for that.
But when gullible journalists are played then acting on information in the financial press becomes a way to lose money. And what is the point in paying for that?