Today I want to take a look at the latest developments from 2 companies that have both tried to play in the US stock markets, but ultimately found out that international investors can be a fickle group. In both cases, outdoor advertising specialist Focus Media and group buying specialist LaShou discovered that foreign equity markets can be quite lucrative and prestigious, especially for up-and-coming Chinese firms that can make successful IPOs. But both firms have also discovered those same markets can also be brutal places for Chinese companies that aren’t used to dealing with sophisticated institutional investors, hedge funds and short sellers that are active in those markets.
Let’s start off with word that Focus Media has finally completed its privatization nearly a year after announcing the plan. (company announcement) Focus first said would privatize last August, with private equity firm Carlyle as one of the bid’s major backers. (previous post) But then a steady string of rumors emerged that the deal was having trouble finding sufficient funds, since Focus was quite a large company with a market capitalization of around $4 billion.
Like many Chinese media companies, Focus was once a darling of US investors when it listed its shares on the Nasdaq in 2005. But it ran into trouble after a failed takeover attempt by leading web portal Sina (Nasdaq: SINA), which was followed by reports that it had overpaid for some of the many acquisitions it made over the years. Its problems culminated in 2011 when it was attacked by a short-seller who accused the company of exaggerating the size of its advertising network, which briefly caused its shares to plunge.
I previously predicted that the deal might derail due to lack of financing, so I should take this opportunity to congratulate Carlyle on getting it done. Of course the next question is what does the future hold for Focus? I previously predicted that Carlyle will try to clean up the company of any remaining problems and improve its financial performance, before trying to sell it to a big global name like JCDecaux (Paris: DEC) in the next 2-4 years, and still think this seems like the most likely outcome.
From Focus, let’s move quickly to LaShou, which was once one of China’s hottest names when the group buying craze was at its height. Whereas Focus succeeded in making an IPO, only to later de-list, LaShou wanted to make a similar offering a couple of years ago when group buying was still relatively hot. But then sentiment quickly faded toward the sector with the dismal performance of US leader Groupon (Nasdaq: GRPN). A sudden chill in US investor sentiment towards Chinese firms in general due to a series of accounting scandals also took a toll, forcing LaShou to abort its IPO plans.
Now media are reporting that LaShou has held talks since late last year about a potential merger with Nuomi, the group buying site operated by publicly listed social networking leader Renren (NYSE: RENN). (English article) The reports aren’t really too clear on who is trying to buy whom, perhaps because no one wants to look like the one being acquired in this face-conscious country.
I previously predicted that LaShou would either merge or close by last fall due to lack of cash, so am quite surprised that it’s still in business such a long time later. But that said, I do suspect that the current company is probably half the size or less of what it was at this time last year, and is probably still looking for cash. Thus I would guess that Nuomi is probably the suitor in this case and that LaShou would be the acquisition target.
All that said, it’s far from clear that these 2 sides will reach a deal since LaShou investors reportedly don’t want to concede control to Renren. Still, I can’t believe that LaShou has too many options anymore, which could ultimately lead to a deal that would see the company purchased by Nuomi or perhaps another buyer by the end of this year.
Bottom line: Focus Media could be sold to a big international ad firm in the next 2-4 years following its successful privatization, while LaShou could be sold by year-end.