{ "docId": "019dd923-622c-750b-8b95-e976ef3dfa16", "docSlug": "7f8b05d541c7", "documentTitle": "Focus Media Holding Ltd. (FMCN)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2011-11-21 00:00:00", "orientation": "portrait", "aspectRatio": 0.7070758, "pageNumber": 39, "pageCount": 80, "prevPage": 38, "nextPage": 40, "slideType": "other", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 10, "notes": "The slide is a page of text from a research report detailing financial improprieties and conflicts of interest.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b95-e976ef3dfa16/39", "deckHref": "/decks/019dd923-622c-750b-8b95-e976ef3dfa16", "deckJsonHref": "/decks/019dd923-622c-750b-8b95-e976ef3dfa16.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b95-e976ef3dfa16#slide-39", "components": [ { "bbox": null, "kind": "callout", "text": "Regardless of the reason for FMCN's transfer of the equity to Dentsu for $2.2 million, FMCN shareholders once again got the short end of the stick.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-14d7-73fd-9f5e-019388bbb59b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.07 }, "kind": "paragraph", "text": "income for the year were $114.8 million and $8.87 million, respectively, making the transaction multiples 0.27x book value, 0.06x revenue, and 0.75x earnings—inappropriate no matter how you look at it. Given the tremendous growth, the business was conservatively worth $177.4 million, or 20.0x earnings, making FMCN’s stake worth $59.1 million, or 26.6x what they received for it.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "044191e8-5856-4225-8bd6-284e8e0c9828", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.72, "x": 0.14, "y": 0.19 }, "kind": "paragraph", "text": "If Hua Guang’s possible IPO is the reason for the bargain sale, it is yet more collateral damage from management’s self-dealing. As we discussed infra, Hua Guang is management’s latest trade on the other side of FMCN shareholders. In 2010, FMCN management purchased a 19% stake in Hua Guang for $13.3 million. A large investment bank loaned management at least part of the funds for the purchase. At the same time, the bank purchased 30% of Hua Guang. If enabling Hua Guang to IPO is the reason FMCN management agreed to such a low price, management figured out a way to throw shareholders under the bus twice on the same transaction.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7d7db94e-b79a-4197-b2ce-358f303d5cba", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.72, "x": 0.14, "y": 0.65 }, "kind": "paragraph", "text": "Regardless of the reason for FMCN’s transfer of the equity to Dentsu for $2.2 million, FMCN shareholders once again got the short end of the stick.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b347a1c7-eba3-436d-b84f-8d9b48d54152", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.72, "x": 0.14, "y": 0.74 }, "kind": "paragraph", "text": "This spring, insiders once again needed an incentive to do their job. Management decided to take a 19% stake in a traditional outdoor billboard subsidiary, Shanghai Hua Guang Chuanzhi OOH Co. Ltd. (“OOH”). OOH is expected to launch a public offering on the Shanghai Stock Exchange in 2012. It may seem that insiders are less greedy than before, but unfortunately that is not the case. At the same time that insiders invested, a large investment bank (the “Investment Bank”) subscribed to an additional 30% of the OOH. Further, the Investment Bank loaned insiders a significant portion", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b7747486-b4fa-4f2f-a351-a2ef79e713a8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.72, "x": 0.14, "y": 0.56 }, "kind": "paragraph", "text": "It is unusual that the contract cites, without describing, statements by Mr. Jiang regarding the rationale for the transfer. Further, the contract seems to provide a guarantee that such statements are, or will be, true. It seems that there are some material terms that the parties did not want to include in the contract, which is concerning.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f683fe5f-31b7-46c7-a9e9-5434c08d57e6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.72, "x": 0.14, "y": 0.38 }, "kind": "paragraph", "text": "Article 7.1(4) of the equity assignment contract is a bit unnerving, as it reads (Party B is the FMCN subsidiary that transferred the equity to Dentsu): Notwithstanding the three prior clauses [in Article 7.1], statements (including without limitation those Mr. Jiang Nanchun from Focus Media Holdings Ltd. made to the principal of Party A on November 27, 2009) as to why Party B is assigning the equity to Party A, whether oral or written, shall be guaranteed by Party B and Party B’s representative.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fe43a2a1-cf42-4d84-bce6-5761e946bad7", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "Notwithstanding the three prior clauses [in Article 7.1], statements (including without limitation those Mr. Jiang Nanchun from Focus Media Holdings Ltd. made to the principal of Party A on November 27, 2009) as to why Party B is assigning the equity to Party A, whether oral or written, shall be guaranteed by Party B and Party B's representative. — Equity assignment contract Article 7.1(4)", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-14d7-73fd-9f5e-07b096919afb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.45, "x": 0.14, "y": 0.91 }, "kind": "source-note", "text": "107 http://doc.mbalib.com/view/1e64b197cd9b248c28696b5f7057b036.html", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "4d0d4685-a85d-400b-93cb-78560e7cae2f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.72, "x": 0.14, "y": 0.685 }, "kind": "title", "text": "XIII. OOH, Insider Self-Dealing Continues in 2011 With Even More Conflicts of Interest than Usual", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f8a11fac-44b9-422d-a39b-64a7112d548a", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 40, "from": 21, "beatId": "8edd255c-a0e6-4fcc-ada5-3e6d73dc2fae", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Struggle", "beatSlug": "overcoming-monster-the-struggle", "evidence": "The report presents evidence of insider enrichment and potential fraud", "position": 2, "confidence": 0.8, "parentBeatName": "Development", "parentBeatSlug": "development" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }