PE-backed Focus Media’s backdoor listing encounters hurdles
Private equity-backed Focus Media’s planned $7 billion reverse merger with Shenzhen-listed Hongda New Material has encountered another setback following the resignation of Hongda's chairman in response to a probe by authorities.
Dehong Zhu, who is also the controlling shareholder of the shell company, has vacated his positions in the firm due to personal reasons, the silicon rubber manufacturer said in a filing on Tuesday. It added that Zhu will cooperate with the China Securities Regulatory Commission (CSRC) probe, and take full responsibility for any matters and penalties that may arise from it.
Last week, Hongda said it had been informed that the CSRC would investigate the company and Zhu. The move is based on suspicions that both parties had violated securities laws relating to information disclosure.
Hongda is still in consultations with related parties for the asset restructuring plan with Focus Media, the filing said.
Hongda announced earlier this month it would acquire a 100% stake in Focus Media through an asset swap, a share issue and cash payment worth RMB45.7 billion ($7.37 billion), almost twice the $3.7 billion that the valuation at which the company was taken private in 2013 by CEO Jason Jiang and a group of PE investors. The reverse merger plan was announced in May.
Hongda said it will finance the deal through a RMB5 billion private placement to about 10 qualified investors.
In May, Focus Media's offshore shareholders, including The Carlyle Group, FountainVest Partners, Fosun International, CITIC Capital Partners, China Everbright and Primavera Capital, sold part of their stake to 36 domestic institutional investors in a transaction that valued the company at about RMB45 billion.
At present, CITIC holds a 8.77% stake in the business, while Carlyle and FountainVest have 7.54% each. Fosun and China Everbright own 7.77% and 1.29%, respectively. Primavera has a 0.65% interest.
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.
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