Focus Media's PE-backed MBO clears final hurdle

The NASDAQ-listed advertising company's board in December accepted an offer of $27.50 per American depository share from Jason Jiang, the chairman and CEO, together with The Carlyle Group, FountainVest Partners, CITIC Capital Partners and China Everbright. Fosun International, currently Focus Media's largest shareholder after Jiang, with a 16.8% stake, agreed to roll over its equity into the acquisition vehicle.

The consortium has secured $1.5 billion in aggregate debt financing for the buyout. Bank of America, China Development Bank, China Minsheng Banking Corporation, Citibank, Citigroup Global Markets, Credit Suisse, DBS Bank, Deutsche Bank, ICBC International Capital, ICBC International Holdings and UBS have agreed to provide or underwrite the debt.

The initial bid for the company, tabled last August, was for $27 per share. The consortium included CDH Investments but the private equity firm dropped out before the revised offer was submitted.

Jiang, Fosun and certain members of Focus Media's senior management team between them own 36% of the outstanding shares. As a Cayman Islands-incorporated company, Focus Media required the assent of two-thirds of shareholders choosing to participate in the vote for the transaction to go through. More than 78% of total shareholders voted in person or by proxy, with approximately 99% expressing their support for the deal.

According to sources familiar with the situation, the buyout has been structured so that no single investor will hold a majority stake, which means there is no change of control. This reduces - but does not eliminate - the likelihood of Focus Media triggering a review under China's Anti-Monopoly Law (AML).

Ownership of Focus Media is partly secured through a variable interest entity (VIE) - an onshore structure controlled by local shareholders that exists for the purpose of holding assets that a foreign player cannot - and China's Ministry of Commerce is generally unwilling to approve transactions that feature such structures. This is seen as being responsible for a failed merger between Focus Media and Sina in 2009.

Founded in 2003, Focus Media operates an advertising network in various Chinese urban locations. The company uses audiovisual television displays that are placed primarily in high-traffic areas of commercial office buildings such as in lobbies and near elevators, as well as in large retail chain stores and other venues.

In 2012, Focus Media posted revenues of $927.5 million, up 17.9% year-on-year, as net income rose 46.7% to $235.9 million.

Focus Media will become seventh - and by some distance the largest - US-listed Chinese company to go private through a private equity-backed deal. AVCJ has records of 11 other transactions still in process while two were abandoned after filing initial documentation.

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• Topics
• Consumer
• Greater China
• Buyouts
• Media
• buyout
• China
• Consumer
• Fountainvest Partners
• The Carlyle Group
• CITIC Capital Partners
• China Everbright
• Fosun Group
• TMT