Focus Media (FMCN) Slumps; Mystery Surrounds Ginseng Plantation Acquisition
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Focus Media (Nasdaq: FMCN) took a hit today, following negative comments from noted short-selling firm, Muddy Waters.
Muddy Waters highlighted Focus Media's recent acquisition of a ginseng plantation at the Russian and North Korean border. Muddy commented, "The most troubling aspect of this acquisition is that the selling shareholders, who had purchased the plantation only five months earlier from the founders, included at least one FMCN employee. Strangely, this company seems to have no operations; yet, most recently reported a net profit margin of 48.9% on $1.5 million in revenue."
The firm then likened Focus Media to now-unseated Olympus. Olympus said it overpaid by about $1.3 billion or acquisitions, and shares have fallen about 58 percent in Japan since mid-October, when the announcement was made.
Muddy Waters points out that Focus Media has written off aobut $1.1 billion of the $1.6 billion in acquisitions made over the last few years, indicating that even Focus Media believes it overpaid for many of the 21 deals made. Muddy commented, "[Focus Media's] response to our reports has been that these overpayments were due to (still existing) management’s incompetence."
Briefly, Muddy Waters describes Hunchun Shengtai Ginseng Plantation as just that, a "ginseng plantation." The two owners initially registered the company with equity capital of about $64,000, not really a big corporation. Their office was rented for about $73 per month. That was set-up in early 2007. In May 2008, two people bought the entity from the previous owners, renaming it Hunchun Focus Media Advertising Co. Ltd., though Focus Media wasn't assocaited with the purchase and knew nothing about it.
Muddy says one of the new owners was Wang Feng, who was an employee of Focus Media at the time. Remaining questions from Muddy include:
Link to Full Muddy Waters Report.
Muddy Waters highlighted Focus Media's recent acquisition of a ginseng plantation at the Russian and North Korean border. Muddy commented, "The most troubling aspect of this acquisition is that the selling shareholders, who had purchased the plantation only five months earlier from the founders, included at least one FMCN employee. Strangely, this company seems to have no operations; yet, most recently reported a net profit margin of 48.9% on $1.5 million in revenue."
The firm then likened Focus Media to now-unseated Olympus. Olympus said it overpaid by about $1.3 billion or acquisitions, and shares have fallen about 58 percent in Japan since mid-October, when the announcement was made.
Muddy Waters points out that Focus Media has written off aobut $1.1 billion of the $1.6 billion in acquisitions made over the last few years, indicating that even Focus Media believes it overpaid for many of the 21 deals made. Muddy commented, "[Focus Media's] response to our reports has been that these overpayments were due to (still existing) management’s incompetence."
Briefly, Muddy Waters describes Hunchun Shengtai Ginseng Plantation as just that, a "ginseng plantation." The two owners initially registered the company with equity capital of about $64,000, not really a big corporation. Their office was rented for about $73 per month. That was set-up in early 2007. In May 2008, two people bought the entity from the previous owners, renaming it Hunchun Focus Media Advertising Co. Ltd., though Focus Media wasn't assocaited with the purchase and knew nothing about it.
Muddy says one of the new owners was Wang Feng, who was an employee of Focus Media at the time. Remaining questions from Muddy include:
- Why did a tiny ginseng plantation company merit FMCN's attention?
- How much did Wang and Chen pay for Shengtai?
- How much did FMCN book for the acquisition of Shengtai, and how does that compare to the price Wang and Chen paid?
- How much cash actually changed hands, and did Wang and Chen keep it or was it redirected elsewhere?
Link to Full Muddy Waters Report.
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