Focus Media: My Novel Obsession - Master Copy Version Amongst Annotations
There are days I should non live allowed to hang or therefore a spreadsheet. This post had non i but ii - nearly identical mistakes inwards it. I precisely read off the wrong trace inwards my tables together with quoted gross margins non operating margins. I direct hold corrected below together with position inwards an addendum with the master copy sources of the right information inwards it. I direct hold likewise republished the post every bit it should direct hold been inwards the root place.
Just to teach inwards clear - phrases removed from this post are instrike throughand additions are inwards italics.
If you lot direct hold non read this post - precisely go forthwith to the corrected versions.
The announced "go-private" transaction for Focus Media has me obsessed. It seems to comprehend a whole gamut of my interests, Asian individual equity, alleged Chinese fraud, connections amongst major belongings developers together with numbers together with accounts I discovery surprising. The whole works! It may non live the most of import affair inwards fiscal markets this twelvemonth - but it is i of the most interesting.
Readers mightiness request some background here. Focus Media is a display advertising work concern inwards PRC which has analogue together with digital poster frames inwards elevators together with shopping centers every bit good every bit LCD screens placing advertisements to a greater extent than generally. Most of these adverts are pocket-size (the LCD screens are mostly 17 inch according to the annual study together with many of the posters are smaller). Here are pictures of a few...
(My source for these photos is a Seeking Alpha bull on the stock here...)H5N1 lot of what used to live counted every bit LCD screens are uncomplicated posters:
The argue for using posters is inconveniences similar having no available powerfulness supply. There has been some dispute almost the number of screens together with posters but at that spot is no uncertainty that the fellowship has a lot of these - they are visible or therefore major cities inwards China.
The fellowship likewise claims to direct hold the right to sell advertising on a large issue of motion painting icon palace screens. Again at that spot is a dispute almost the issue of these screens.
The mechanics of Focus's business
The maintenance cannot live neglected because it devalues adverts when kids scrawl picayune goatie-beards on the pictured women (or worse).
The profitability of Focus's business
The most notable affair almost Focus from the accounts is their startling profitability. Their the release:
Aug.13, 2012 -- Focus Media Holding Limited ("Focus Media") today announced that its Board of Directors has received a preliminary non-binding proposal letter, dated August 12, 2012, from affiliates of FountainVest Partners, The Carlyle Group, CITIC Capital Partners, CDH Investments together with PRC Everbright Limited together with Mr. Jason Nanchun Jiang, Chairman of the Board together with Chief Executive Officer of Focus Media, together with his affiliates (together, the "Consortium Members"), that proposes a "going-private" transaction for $27.00 inwards cash per American depositary share, or $5.40 inwards cash per ordinary share...
The bidders are a who-is-who of reputable individual equity firms. my doubts almost their PRC investments before - but they are large together with reputable. CITIC Capital is a individual equity work solid associated with China International Trust together with Investment Corporation which is effectively the Chinese sovereign wealth fund. CITIC Capital nevertheless is non the Sovereign Fund - rather an associated individual fund. By all accounts it is Princeling Central. China Everbright is a Hong Kong listed fiscal work solid clearly amongst links to the Chinese establishment. Bo Xilai's brother recently quit as a director. This grouping is a mix of Chinese, other Asian together with Western institution firms.
One banking concern mentioned inwards the press release is DBS - which i time to a greater extent than represents Singapore Inc. The solely other banking concern mentioned is Citigroup - together with they direct hold provided a "confident" letter.
So where are nosotros now?
What nosotros direct hold are some high-profile but rat-bag shorts on i side squealing fraud. And on the other side nosotros direct hold a who's who of Asian work concern wanting to convey this individual for the not-so-trivial amount of USD3.5 billion.
You run into why I am obsessed? Right upwards my alley. And perchance a exam of my Guanxi vs Analyst thesis.
Is this a done deal?
This sounds similar a done-deal. The largest shareholder inwards Focus is Fosun International - an HK conglomerate. They direct hold publicly called the bid "attractive". The bid squad contains Mr. Jason Nanchun Jiang - the CEO/Founder of Focus - together with a human critical to the running of the work concern (apart from anything he controls the variable involvement entity). Given that it contains the critical individual together with the primary shareholder wants to accept it is probable the board volition become along. And the bid is inexpensive plenty that it is unlikely that - absent absolutely grotesque fraud - zero that is found on due diligence will dissuade the buyers.
The parties are rich plenty that $3.5 billion is a large - but non an intolerably large bite. They are upwards for it.
It is nevertheless plain of study to due diligence. The missive of the alphabet sent past times the buyers to the fellowship is attached to the press release. The terminal paragraph says it clearly:
13. No Binding Commitment. This missive of the alphabet constitutes solely a preliminary indication of our interest, together with does non constitute whatever binding commitment amongst honour to the Acquisition. H5N1 binding commitment volition outcome solely from the execution of Definitive Agreements, together with and then volition live on price together with weather provided inwards such documentation.And therefore nosotros direct hold a due-diligence catamenia inwards which some of the most reputable together with largest individual equity firms volition create due diligence on a fellowship that i of the most famous rat-bag short-sellers asserts is a fraud.
Oh to live a fly-on-the-wall
I would dearest to live a fly-on-the-wall every bit they move out how to exam the Muddy Waters allegations. Due diligence is sometimes (incorrectly) treated every bit a formality. But inwards this representative the stakes are real. Billions of dollars are on the trace together with the really credibility of some firms (especially Carlye) are on the trace amongst it. Carlyle has been burnt past times some frauds inwards Asia before. If - later alert past times Muddy Waters - Carlyle were to purchase this work solid together with it turned out to live fraudulent the enquiry would arise every bit to whether Carlyle staff were deliberately buying frauds to loot the Carlyle funds. My gauge is that the really beingness of Carlyle is at stake.
But Carlyle direct hold competent staff laced throughout their organization. They volition create their due diligence - together with if the bargain closes I intend you lot tin presume that Muddy Waters was wrong.
If the bargain doesn't closed amongst the backing of the the largest shareholder together with at this pricing together with then you lot belike direct hold to conclude that Muddy Waters is right. If Muddy Waters is right together with then the revenue together with the margins of this work solid are grotesquely overstated together with the stock is belike going to settle somewhere below ii dollars.
And amongst that you lot sympathise my obsession.
John
Disclosure: I intend at that spot is a reasonable direct chances that Carlyle - together with perchance some of the other firms inwards this syndicate volition walk. In all honesty I direct hold no view whether they volition or non but every bit the stock volition air current upwards at $2 (or less) if they walk the bet is worth taking. So I am brusk together with peril losing the deviation betwixt the electrical current cost (25 together with change) together with the bid cost (27) if the bargain does close.
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Data sources for the addendum:
Here is the P&L for Focus Media from the last annual report:
FOCUS MEDIA HOLDING LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the years ended December 31, | ||||||||||||
| 2009 | 2010 | 2011 | ||||||||||
| (In U.S. Dollars, except portion together with per portion data, unless otherwise stated) | ||||||||||||
Net revenues | $ | 397,164,522 | $ | 516,314,697 | $ | 792,620,177 | ||||||
Cost of revenues | 241,073,203 | 221,690,034 | 289,644,266 | |||||||||
Gross profit | 156,091,319 | 294,624,663 | 502,975,911 | |||||||||
Operating expenses: | ||||||||||||
General together with administrative | 88,833,305 | 79,759,757 | 127,012,894 | |||||||||
Selling together with marketing | 79,786,861 | 103,722,237 | 147,716,437 | |||||||||
Impairment loss | 63,646,227 | 5,736,134 | — | |||||||||
Other operating expenses (income), net | 13,111,043 | (14,143,945 | ) | (16,137,695 | ) | |||||||
Total operating expenses | 245,377,436 | 175,074,183 | 258,591,636 | |||||||||
Income (loss) from operations | (89,286,117 | ) | 119,550,480 | 244,384,275 | ||||||||
Interest income | 4,945,946 | 7,259,508 | 15,538,943 | |||||||||
Interest expense | — | — | 716,956 | |||||||||
Investment loss | — | 1,287,881 | — | |||||||||
Income (loss) from continuing operations earlier income taxes | (84,340,171 | ) | 125,522,107 | 259,206,262 | ||||||||
Income taxes | 13,780,065 | 22,335,579 | 54,761,394 | |||||||||
Loss from equity method investment | — | — | 43,632,613 | |||||||||
Net income (loss) from continuing operations | (98,120,236 | ) | 103,186,528 | 160,812,255 | ||||||||
Net income (loss) from discontinued operations, cyberspace of tax | (111,612,420 | ) | 83,077,575 | — | ||||||||
Net income (loss) | (209,732,656 | ) | 186,264,103 | 160,812,255 | ||||||||
Less: Net income (loss) attributable to noncontrolling interests | 3,524,388 | 1,990,626 | (1,864,783 | ) | ||||||||
Net income (loss) attributable to Focus Media Holding Limited Shareholders | $ | (213,257,044 | ) | $ | 184,273,477 | $ | 162,677,038 | |||||
Income (loss) per portion from continuing operations — basic | $ | (0.15 | ) | $ | 0.15 | $ | 0.24 | |||||
Income (loss) per portion from continuing operations — diluted | $ | (0.15 | ) | $ | 0.14 | $ | 0.23 | |||||
Income (loss) per portion from discontinued operations — basic | $ | (0.17 | ) | $ | 0.12 | $ | — | |||||
Income (loss) per portion from discontinued operations — diluted | $ | (0.17 | ) | $ | 0.11 | $ | — | |||||
Income (loss) per portion — basic | $ | (0.33 | ) | $ | 0.26 | $ | 0.24 | |||||
Income (loss) per portion — diluted | $ | (0.33 | ) | $ | 0.25 | $ | 0.23 | |||||
Shares used inwards calculating basic income (loss) per share | 651,654,345 | 707,846,570 | 671,401,000 | |||||||||
Shares used inwards calculating diluted income (loss) per share | 651,654,345 | 731,658,265 | 693,971,258 | |||||||||
The accompanying notes are an integral purpose of these consolidated fiscal statements.
And hither is JCDecaux's P&L - snapshot painting from their annual report...
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