Even though a consortium of very reputable investors led by The Carlyle Group (NYSE: CG) have made an offer to take it private at $27 a share, Focus Media Holding (NASDAQ: FMCN) continues to fall. In trading today, Focus Media Holding was down 0.78%. For the last week of market action, Focus Media Holding is off by 3.34%.
Focus Media Holding is a major advertising company based in Hong Kong. Many Chinese stocks are starting to go private as listing on the American stocks exchanges has not been all that. Whether right or wrong, the entire group of Chinese stocks has been tarred due to the fraudulent activities of many.
Firms such as Glaucus Research and Muddy Waters specialize in discovering fraudulent activities at Chinese companies. When they make there well-findings, it cases a dark cloud of suspicion of all Chinese stocks. Invariably, that takes the stock prices lower.
Even though Focus Media Holding has a what appears to be an excellent balance sheet and income statement, the share price is still down more than 20% for 2012. Management along with The Carlyle Group is obviously looking to unlock the value by taking it private.
Most likely, Focus Media Holdings will reappear as a publicly traded company. With a profit margin of more than 25% and earnings-per-share growth increasing by almost 70% this year, the future is certainly bullish. The forward price-to-earnings ratio is just 8.32.
Traders can profit here through buying Focus Media and selling at the $27 offerprice. Or positions can be taken in other Chinese companies that are good candidates for being taken private. The valuations of many Chinese stocks are very alluring.
While the fraud concern is always there, Jesper Madigan, manager of several Asian income funds for the Mathews Group, advises that no Chinese company found to be fraudulent has even paid a dividend. That is a good place to start for the due diligence and screening to find a suitable candidate.