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Focus Media Holding Ltd. Message Board

  • paultradestoday paultradestoday Mar 13, 2009 7:51 AM Flag

    For your reading pleasure

    The following is an excerpt from my SB account:
    Focus Media (FMCN.O)
    Buy: Musings...

    * Focus management departures- - Media reports about the
    departure of former CEO Dr. Tan and certain unnamed
    lieutenants could be true given than Dr. Tan is said to have
    had little day-to-day involvement at Focus for well more than
    a month. Dr. Tan formally stepped down as CEO in Jan. We
    expect a Focus press release shortly on the subject,
    hopefully giving us an earnings date as well....
    * Is the Sina deal still on- Probably... - This, of course,
    is the ultimate question: Our checks suggest it is somewhat
    of a fluid situation at this point, and that the departure of
    Dr. Tan would raise concerns in the Sina camp.
    Notwithstanding an expectation at Sina that in any M&A
    transaction senior management will depart (and Dr. Tan is a
    senior executive - the classic example of people who don't
    stay under such circumstances), we believe the fact that Tan
    ran FraMedia, arguably the jewel within the DOOH crown that
    Sina is acquiring, is reason for pause at Sina, as it creates
    additional integration risks, raises issues about why he is
    departing, etc.
    * Where are we in the deal process- Nearing the end... - We
    believe there are 2 closing conditions for this transaction:
    1) Chinese antitrust approval; and 2) the filing of the F3
    that will enable Sina shares to be distributed. #1 must come
    before #2, and we believe that govt approval is taking longer
    in large part because China has a new anti-monopoly law, and
    this deal is an early transaction under that law and there is
    a learning curve involved. We believe preparing 2 years of
    historic proforma financials for the carve-out, as well as
    the Solvency Opinion for the Focus' legacy assets, should be
    completed by the end of the month. Deloitte is looking at the
    tax treatment of the Sina shares.
    * Fosun Int'l and the effect of the Sina poison pill- Not a
    deal breaker... - Fosun confirmed in a conference call a
    strong interest in Focus, as well as in Sina. At ~26% of
    Focus, we believe that Fosun's ownership stake will give them
    ~12% of Sina after the deal closes, putting them in violation
    of the Sina poison pill. Under such circumstances, there are
    four likely outcomes: 1) Fosun sells its stake down before
    being issued Sina shares; 2) Fosun sells enough Sina shares
    after being issued them and before they file their ownership
    with the SEC; 3) Sina's board waives the pill; or 4) the pill
    is triggered and Fosun is diluted. Regardless of the
    outcome, we do not believe the pill prevents, or can be used
    to terminate, the Sina-Focus transaction.

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    • Also, from my MSDW account:
      Key sales people stay: According to the company, 1)
      there is indeed some turnover, including some
      department heads. But most of them are on the
      administrative front, and key salespeople are still
      working normally at FMCN. 2) Dr. Tan resigned as CEO
      and became an executive director in January (no longer
      involved in daily operation), with Jason Jiang assuming
      the position of CEO.
      Outdoor media leader is undervalued: At US$5.1 per
      ADS, the stock is trading at a heavy discount to its
      outdoor media peers, on our estimates: 1) Its P/E is 3-4x
      our estimated 2009 earnings, and its EV/Sales is 0.4x
      (50~60% discount). 2) The company has US$381mn in
      net cash as of 3Q08, accounting for over 50% of its
      market cap, one of the five highest such ratios among its
      China Internet and media peers. 3) The current stock
      price implies that FMCN’s sales market share in five
      years would shrink to 8.0% for its outdoor adv. and 2.5%
      for its online adv (vs. 17% and 15% in 2008), with the
      operating margin to be ~5% (vs. ~20% in 2008). 4) The
      market currently values FMCN’s ‘Stub’ business post
      merger with Sina (including China’s largest online adv.
      agency) for free. In our view, it is hard to replicate
      Focus’s core media assets due to their scale and
      scarcity, as: 1) It commands a ~90%+ sales market
      share in office building, in-elevator adv. and for in-store
      adv. 2) Its office building and in-store network covers
      over 50 major cities across China, with ~120,000 TV
      displays near elevators and ~270,000+ poster frames
      inside elevators. In contrast, most rivals lack nationwide
      scale for broad marketing campaigns.