US-listed Focus Media Holding Ltd, China's largest interactive digital advertising company, received a $3.49 billion offer Monday from its chief executive, Jason Nanchun Jiang, and several private equity firms, to take the company private. If the offer is accepted, this would mark the largest management-led buyout to date of a US-listed Chinese company, after Shanda Interactive Entertainment Ltd's $2.3 billion repurchase in 2011.
At present, with Focus Media's shares still feeling the sting of attacks from last year by shortseller Muddy Waters, and investor confidence in US-listed Chinese companies badly shaken following a slew of accounting fraud investigations from the US Securities and Exchange Commission (SEC), a delisting may be in order for the company now that its stocks are undervalued, Zhang Qi, an analyst at Zero2IPO, a Beijing-based consulting firm, told the Global Times.
Pulling its listing from the US market may inspire other Chinese companies, many of which are considering delisting due to the challenges they face in the country but have yet to actually follow through with these plans, Zhang added.
Focus Media is the leading player in China's public-display advertisement sector, has a presence all over the country and has consistently performed well financially over the years. If, despite its strong position in the Chinese market and numerous businesses successes, Focus Media turns its back on its listing in New York due to the market's under appreciation of its shares, other struggling mainland-based peers may follow suit after failing to win over investors in the US.
Since November, US-based Muddy Waters has been targeting Focus Media with allegations that the company has overstated its assets and paid too much for some of its acquisitions. Following the shortseller's first report on November 21 of what it claimed were business irregularities on the part of Focus Media, the company's shares plummeted nearly 40 percent the same day.
Despite Focus Media's denial of Muddy Water's allegations, the company's attempts at self-defense did little to help its shares regain their previous value, which undoubtedly lessened its incentives to maintain its New York listing.
Making matters worse for Focus Media, a slew of alleged accounting scandals among US-listed Chinese firms starting last year has given companies from China a black eye and led to a loss of faith from US capital holders, said Zhang.
With financing harder to come by in the US, investors are likely to see more Chinese companies withdraw from this overseas market as shortsellers and intense regulatory oversight taint their reputations, said Zhang, who added that, "high-quality Chinese companies with strong earnings and sound management practices, such as Focus Media, still have the potential to go public in other markets outside the US as well."
Bao Fan, the founder and CEO of China Renaissance Partners, a Beijing-based investment bank, predicted that Focus Media would attempt to go public in Hong Kong, a well-established market in terms of information disclosure and fair play.
A Hong Kong listing makes sense for Focus Media, a company that targets the domestic market, said Bao. Hong Kong can offer geographic and cultural advantages the US market can't, and a listing in this region could help Focus Media build its brand image at home, Bao went on to explain.
