The deal, which was completed after the New York close last Thursday, was priced at a modest 0.9% discount to the latest market price. It was also increased from the the size that had been targeted during the final days of the roadshow.
The good response helped spark a rally of more than 11% in the share price Friday in an otherwise declining market. That came after the shares had already risen 6% during the bookbuilding.
ChinaÆs largest audiovisual media advertising firm and several of its original venture capital investors sold a combined 6.7 million ADS at a price of $54 each, versus the latest market close of $54.50, resulting in a total deal size of $362 million.
The sale marked the largest ever follow-on for a Chinese company listed on Nasdaq and the second offering of Focus Media shares this year after a slightly smaller $295 million sale in January. Like last time, the bulk of the offer, or 5.7 million ADS, was backed by shares provided by existing shareholders, while the remaining 1 million ADS was made up of new shares.
Goldman Sachs and Credit Suisse are global coordinators for the offering and joint bookrunners together with Citigroup and Merrill Lynch.
About $24 million of the $50.8 million in net proceeds received by the company will help pay for the $325 million acquisition of its largest mainland rival, Target Media - a deal cemented earlier this year - while another $20 million will be used to expand its network, according to an SEC filing.
The order book was between three and four times covered with more than 85% of the demand coming from US investors, sources say.
The strong interest was likely underpinned by the fact that Focus MediaÆs shares had risen 23% since the January share sale. The company is also acting as a consolidator in the industry after a series of acquisitions, including that of Target Media.
Focus Media operates the largest out-of-home flat panel display advertising network in China, which makes it well placed to benefit from ChinaÆs rise to the fourth largest advertising market in the world, analysts say.
In a research note published at the end of May, Morgan StanleyÆs Richard Ji and Jenny Wu argued that the company has created its own business model by pioneering outdoor audiovisual advertising services and is now able to define the rules of the game.
ôIn contrast to the heavy competition in other media sectors, Focus Media enjoys a quasi-monopolistic status with 95%-plus market share following its acquisition of Target Media (we estimate CCTV and Sina account for only 30% of the TV and online advertising market share, respectively),ö they said.
ô(Focus Media) also boasts pricing power with the average selling price in top-tier cities escalating at a compounded rate of 15-20% in the past eight quarters, versus only 6% for CCTV,ö they said, but added that the company does face a challenge with regard to the integration of the multiple acquisitions it has made in the past six months.
The investment bank initiated coverage with an overweight recommendation, but didnÆt set a target price.
Focus Media posted a net profit of $9.4 million for the first three months this year, which was already 40% of the $23.5 million it netted in the entire year 2005.
ôThis is a good secular growth story which has already made money for its investors. It is now moving into WAP advertising which shows the company continues to move into new areas,ö notes another observer. The fact that investors were able to pick up the shares at a significant discount to the historical high of $69.18 reached in mid-May, also likely acted as an incentive, he adds.
Hopes that the share price will return to those levels seem not too far off, after the shares jumped 11.5% to $60.78 in FridayÆs trading session and then added a further 0.7% to $61.20 in after hours trading. The shares have more than tripled since the companyÆs IPO at $17 in July last year.
Initially the latest sale was meant to comprise 7.9 million ADS û each corrresponding to 10 common shares û but in light of the volatile market conditions, which saw the share price slump 23% in the four days immediately after the initial SEC filing on June 2, some of the vendors decided to hold on to their shares.
As a result, the size of the offering was reduced to 5.5 million ADS. Both 3i Group and Draper Fisher Jurvetson ePlanet - which had been due to sell their entire stakes of 1.52% and 1.46% respectively - did not sell. A private equity arm of Goldman Sachs also decided to sell only part of its 4.3% stake, according to an amended SEC filing on June 13.
GS Focus Holding did eventually sell all of its shares, however, as the strong demand allowed the size of the offering to be increased again to 6.7 million ADS in connection with the pricing.
The deal includes an option for the underwriters to sell an additional 1 million ADS, which could boost the total proceeds raised to $416 million. The greenshoe will include 60% new shares and 40% shares sold by Chairman and CEO Jason Nanchun.
Separately, Korean e-commerce marketplace provider Gmarket has set the parameters for its Nasdaq IPO which will comprise a total of 9.1 million ADS, or about 18% of the company. Each ADS corresponds to one common share. Two thirds of the units are backed by primary shares, while the remainder is made up of secondary shares to be sold mainly by company executives and directors.
The price range has been set at $13.25 to $15.25, which will put the total deal size between $120.8 million and $139 million. There is a 15% greenshoe of all secondary shares provided by Oak Investment Partners, which will sell no shares in the base offer.
Oak Investment also sold $60 million worth of shares to Yahoo! Inc. two weeks ago in a move that has helped attract investor interest to the IPO. Yahoo!, which paid $13.32 per share for its investment, will hold 9.1% in Gmarket after the share sale.
The final price is expected to be determined before the end of this month.
Goldman Sachs is global coordinator for the offering as well as joint bookrunner together with Cowen & Co.
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