The year of the Rabbit may be one that many US-listed Chinese companies would rather forget, and now it’s looking like the Year of the Dragon may offer little relief, as short sellers and class action lawyers continue their assaults. In the latest news, Muddy Waters, whose name became synonymous with short selling attacks on US-listed Chinese firms last year, has renewed its recent attack on Focus Media (Nasdaq: FMCN), while a law firm is putting out a call for investors to join its pending class action lawsuit against information technology software maker Camelot Information Systems (NYSE: CIS). Let’s look at Focus Media first, which has always been a slightly controversial company for various reasons, making it an easier target for short sellers like Muddy Waters that try to raise doubts about such companies’ accounting and other strategic issues to pressure their share prices. Muddy Waters first raised doubts about one of Focus Media’s transactions that looked unrelated to its core outdoor advertising business last year (previous post), and now has issued a new report questioning the size of its LCD screen advertising business. (Chinese article) This kind of repeated attack looks similar to another assault on a similarly controversial company, Qihoo 360 (NYSE: QIHU) by another small short seller, a company called Citron, and I suspect in both cases each short seller has bet big against its target and could lose big money is the share prices don’t come down some more. In the end I wouldn’t be surprised to see both short sellers lose big money on these bets, though not before both Qihoo and Focus suffer damage to their reputations. Meantime, a law firm is putting out a final call for plaintiffs to join its planned class action lawsuit against Camelot over a big drop in its price last year, which the law firm blames on misleading information put out by the Chinese firm. (law firm announcement) We’ve already seen a few similar lawsuits filed against US-listed Chinese firms after many saw their stocks drop dramatically last year amid a series of accounting scandals that undermined the entire sector’s credibility. In the end, this kind of lawsuit will probably result in a settlement, costing Camelot millions or even tens of millions of dollars. But over the longer term these lawsuits are likely to be relatively insignificant for larger companies like Camelot, though some smaller firms that come under similar attacks could ultimately go bankrupt and be forced to de-list.
Bottom line: Short seller and class action lawsuit attacks against US-listed Chinese firms will continue into the first half of 2012, but should start to ease after that.
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Lenovo (HKEx: 992), arguably China’s best known consumer brand, has just released its latest quarterly results that show strong growth but lack any real excitement, as new acquisitions contribute to its top line for the first time. (
There’s a couple of interesting new developments on the listings and de-listings front, with a unit of Xinhua making what looks like a low-key but also significant offering in Hong Kong even as one of the oldest US-listed China firms, AsiaInfo (Nasdaq: ASIA) may be preparing to de-list. The Xinhua listing represents China’s easing of restrictions for such offerings in one of its most sensitive sectors, the media; while the AsiaInfo development marks the latest chapter in a clean-up of US-listed Chinese firms, which have been plagued for much of the last year by a serious of accounting scandals. Let’s look at Xinhua first, which has done a backdoor listing for its relatively obscure TV arm, China Xinhua News Network Corp. (
SMIC (HKEx: 981; NYSE: SMI), China’s largest semiconductor chip maker that seems to hop from one internal crisis to the next, seems to be telling the world with its latest earnings that the days of trouble will soon be behind it. (
The ongoing legal tiff between Apple (Nasdaq: AAPL) and a relatively obscure Taiwanese company over the rights to the iPad name in China has mesmerized the Chinese media and Apple fans in general, but what it really shows is how badly broken the Chinese legal system is when it comes to copyright and intellectual property (IP) protection. Instead of protecting companies like Apple, which are the innovators that drive technology, this series of Chinese lawsuits is doing just the opposite, with the Taiwanese company using China’s inept legal system to try and extort money from this global giant. What’s scarier, the Taiwanese company, an affiliate of Proview Technology, could very well win the case, forcing Apple to either pay an extortionate fee for the use of the iPad name in China, or potentially to abandon the name altogether in this important market. Surely this is not what trademark protection law was meant to do. Let’s quickly review the facts in this case to show why it’s become a bit of a farce, albeit a closely watched one. Apparently the Proview affiliate registered the iPad name back in 2001 when the Taiwan parent was developing a product that clearly had no relationship to Apple’s highly popular product of the same name launched in 2010. That Proview product was no doubt a dud, and the company later sold the global rights to the name to a British firm, which ended up selling the rights to Apple. So now it seems the Proview affiliate has discovered the transfer of the iPad name was never properly executed in China. But rather than admit its fault in the matter and complete the name transfer, it is actually suing Apple in China, saying it still owns the iPad name and Apple is violating its copyright. And rather than force the Proview affiliate to correct the situation, which is what would probably happen in any Western courtroom, the Chinese courts seem to be interpreting the law quite literally and saying that Proview still owns the iPad trademark, and that Apple therefore must either license the name again or stop using it. The case isn’t over yet, with hearings taking place in several Chinese courtrooms. But if China is smart, some senior judicial officials should quickly step in and talk with the judges involved and quickly end the case in Apple’s favor or with a reasonable settlement. Otherwise they risk tarnishing the image of a Chinese copyright protection system that, while headed in a positive direction, is still rife with problems.
China has just published its first monthly auto sales for 2012 and they aren’t pretty, boding poorly for the sputtering market in the Year of the Dragon. Of course, the figures for the month of January come with several major footnotes, most importantly the fact that sales were weak in 2012 as the Lunar New Year holiday fell during the month this year, whereas it fell in February for 2011. Still, the 16.5 percent decline in sales for the month marked the biggest decline in more than a decade, a sharp reversal for a market that was used to gains in the healthy double-digit percentage range for most of 2009 and 2010, and was still seeing healthy growth for most of 2011. (
Qihoo 360 (NYSE: QIHU) seems to pride itself in its ability to make headlines, usually by touting user numbers that some believe are highly inflated, and the latest events that have propelled this company onto the front page just underscore its highly controversial nature. Qihoo, better known for launching assaults on others, both in the courtroom and in the business arena, saw its applications abruptly removed from Apple’s (Nasdaq: AAPL) China app store, amid allegations of manipulation of the ratings information posted by buyers of its apps. (
Let’s get this story finished and move on! I don’t mean to sound impatient, but that’s my first reaction on reading the latest reports about Alibaba’s endless saga in its quest to buy out the 40 percent stake in itself held by Yahoo (Nasdaq: YHOO). I realize this deal involves a big amount of money, possibly as much as $10 billion, but that said, it’s also quite straightforward since the 2 companies have essentially no shared assets and thus literally all that’s needed is agreement on a price and then for Alibaba to find the financing. According to the latest reports, Alibaba and Yahoo have finally entered into serious discussions, following Yahoo’s naming of a new CEO last month, and the 2 sides fully expect to reach an agreement by mid March. (
