Charm Communications accepts CMC-backed buyout offer
Chinese advertising agency Charm Communications has accepted a take-private offer from a consortium backed by China Media Capital (CMC) that values the NASDAQ-listed company at around $180 million.
The consortium, led by He Dang, Charm's chairman and founder, will acquire all outstanding American Depository Shares that it doesn't already own for $4.70 apiece. It is equal to the price at which Charm closed on September 26, the day before the offer was submitted but represents a 14.3% premium on a 30-day volume-weighted average basis.
The offer still requires approval by the two thirds of shareholders participating in the vote but the consortium already controls 55.3% of the company.
The transaction will be funded through a combination of rollover equity, equity financing provided by CMC, cash from company and its subsidiaries, and a $60 million loan facility extended by Bank of China, according to a regulatory filing.
Charm offers integrated advertising services, with particular focus on television and Internet. Its services include full media planning and buying, as well as creative and branding services.
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.
By contrast, the advertising agency business - placing ads for clients on TV channels, particularly those operated by state broadcaster CCTV - has been more of a consistent performer
CMC was set up in 2010 and claims to be China's first media and entertainment-focused private equity fund approved by the National Development and Reform Commission (NDRC). Sponsors include China Development Bank, Wenhui-Xinmin United Press Group and Shanghai Media Group.
Ruigang Li, CMC's chairman, is the former chairman of Shanghai Broadcasting and president of Shanghai Media Group.
Previous investments include the purchase of New Corporation's China portfolio, separate joint ventures with Dreamworks Animation and Hong Kong broadcaster TVB, and the acquisition of a stake in OCJ, a Chinese TV shopping business. Earlier this year it teamed up with FountainVest Partners to buy a 20% stake in IMAX's China business.
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