NEW YORK (
) -- The $3.8 billion buyout of China's digital advertiser
Focus Media Holding Ltd.
by management and a Carlyle Group-led private equity consortium should close next week following shareholder approval.
Shareholders will vote on the buyout on April 29. The deal has support from chairman and CEO Jason Nanchun Jiang, who holds roughly 36% of the digital media company. Institutional Shareholder Services Inc. and Glass Lewis & Co. LLC have recommended that shareholders favor the deal.
The buyout does have a high shareholder approval hurdle, requiring that 47% of the non-rolling shares support the transaction, according to the deal proxy.
Focus Media added 0.2% to $26.02.
Management, with backing from Carlyle, FountainVest China Growth Capital Fund LP, Citic Capital Partners and China Everbright Structured Investment Holdings Ltd., are taking Focus private for $27.50 for each American Depositary Share, less a 5 cent fee for terminating the ADS. The spread on the transaction Tuesday was 56 cents, or 2%. Assuming the deal closes May 20, that represents an annualized return of 28%.
The merger agreement allows the buyer group 15 business days from meeting the conditions of the deal to close, or about the May 20 date. The deal has an initial termination date of June 19, including its debt commitments, which under certain circumstances can be extended. But Focus Media expects the transaction to close shortly following the shareholder vote. Because financing for the deal has already closed, the buyers are likely not to need the full 15 business-day allotment. Focus Media negotiated against a debt marketing provision during deal talks. A May 2 close translated to an 85% annualized return.
The chief risk remains an informal inquiry by the Securities and Exchange Commission regarding the company's financial filings and transactions since March 2012. Carlyle had full knowledge of the SEC investigation during due diligence. The SEC has not indicated it has found any wrongdoing, nor is it bound in any way by the deal timetable to complete its inquiry. The merger agreement is conditioned on there being no formal government action taken against the company or its officers.