Added Focus Media (FMCN) to the SMID accounts today. The primary rationale is that this is an undervalued asset with the potential for a re-rating event in the next month or so. The market is pricing the stock as though its acquisition by SINA is not going through. I don't know whether that is the case or not (the smoke indicates so). But on the chance that it does get done, then FMCN is worth about $10-$13 based on SINA's current price of $29 (SINA share ratio at .365 yields approximately $10.58 of value for FMCN shareholders). What is left of FMCN will be sitting on approximatley $1.00 in cash and a residual business that probably isn't worth much: $10.58 + $1.00 + $0.25 = $11.83.
Don't get me wrong. FMCN is a mess. Gone are the days when it was cranking out massive growth rates and monster margins. It was a charade supported by Goldman who did a real deal on shareholders all the way up. There is not only smoke, but fire all around. The deal sure doesn't look as though it is going through by the share price. But all the analysts say they think it will and SINA has reaffirmed its commitment to the deal. Fosan has taken a 28% stake in the company (which throws a spanner in the works), but it is unclear what its intentions are. SINA at $29 looks ok.
But as I have said before, I am not a great fan of China right now, and I sure don't trust the companies nor the govt stats that come out of the country. Short interest is 20m shares down from 23m shares a few months ago (about 16%...which is a concern). Vision China's disappointing report today and negativity surrounding FMCN could point to reasons given for scuppering the deal.
Disclosure: Own FMCN in professional accounts.
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