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FleaBagger (31.23)

Sina and Focus Media

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3

March 11, 2009 – Comments (3) | RELATED TICKERS: FMCN.DL , SINA

I don't know if you heard, but Sina (SINA) bought about three fourths of Focus Media (FMCN) a few months ago in an all-stock deal. If I remember correctly (and I'm starting to doubt that I do), Focus got 0.35 shares of Sina per FMCN share. Focus announced that they would distribute those shares to their own shareholders once the deal was finalized.

Well, I like Sina, and Focus doesn't sound so bad, so when FMCN started trading for less than 1/3 the price of SINA, I decided to load up on the former. And the share price fell. So I loaded up some more. I kept buying and buying, and today, SINA is up above where it was when I first heard about the deal, in the $22 range. FMCN is trading just above $5. 

So if you add 0.35 shares of SINA at today's price to the $3 in cash that FMCN is trading for, you have a company that has more than $10 in cash and stock trading for less than half of that. That doesn't even count Focus' remaining business endeavours.

That said, can anybody explain to me why the big fish haven't arbitraged the heck out of that spread? Why is SINA up more than 10% today and FMCN down more than 20%? Am I stupid?

3 Comments – Post Your Own

#1) On March 12, 2009 at 3:19 AM, amw5747 (< 20) wrote:

I've been buying FMCN on the same basis and have the same questions you've offered.  The websites for both companies contain the press release covering the deal's announcement and sets closing for sometime during the first half of 2009.  Sina shares will be issued to FMCN at closing, then distributed on a 0.35 basis per share of FMCN.  That's about all I can find.  Like you, I am somewhat troubled by the premium implied by today's action.  There is news of a management exodus at FMCN and that the founder of the company has recently resumed the chief position.  The market sees little value in FMCN after the deal closes and thus bid down both SINA & FMCN when it was announced.  But the relative price action today is strange.  If the deal is somehow in jeopardy, news of management resignations would seem to imply serious problems at the company, at least in my mind.  If you find any answers, I'd love to hear them. 

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#2) On March 12, 2009 at 10:50 AM, FleaBagger (31.23) wrote:

Maybe the market's pricing in the possibility that FMCN's old management team will take the SINA shares with them when they go.

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#3) On March 12, 2009 at 10:57 AM, FleaBagger (31.23) wrote:

Today looks promising as of 10:52

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