Dentsu challenges take-private of China’s Charm Communications

According to court documents filed in the Cayman Islands - cited by Offshore Alert - Dentsu Aegis declined the $4.70 per share take-private offer, which valued the business at around $180 million, and retained its stake. The court has been asked to set a fair price after the parties were unable to resolve the dispute.

Charm offers integrated advertising services in China, with particular focus on television and Internet. Its services include full media planning and buying, as well as creative and branding services.

CMC teamed up with Charm's chairman and founder, He Dang, and submitted the privatization bid in September 2013. It won board support the following May and then shareholder approval in September of last year, although Dentsu Aegis was one of several groups to reject the proposal. The business was delisted in October 2014.

The offer required approval by the two thirds of shareholders participating in the vote but the consortium already controlled 55.3% of the company.

Aegis invested $56.6 million in Charm in January 2010 and it held a 19.8% stake in the business ahead of a US IPO several months later than raised $74.2 million. Aegis' interest was diluted to 15.9% post-offering and it had 15.2% when the privatization bid was launched. The two companies also agreed to form a China joint venture. Subsequent to the Charm investment, Aegis merged with Dentsu.

The company reported a net income of $1.4 million in 2013, compared to a loss of $2.5 million the previous year, although still a far cry from the $48 million posted in 2011. Revenue peaked at $238.8 million the same year, before dropping to $112.8 million in 2012 and $128.4 million in 2013.

The drop in revenue was due to underperformance of Charm's media investment management business, which typically sees the company act as the exclusive advertising agency for television channels or certain programs. It must commit to buy air time regardless of whether it is able to sell it and at what price. The advertising agency business - placing ads for clients on TV channels - has been more of a consistent performer.

Ruigang Li, CMC's chairman, was previously chairman of Shanghai Broadcasting and until recently served as president of Shanghai Media Group.

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• Topics
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