Three New China Stocks Might Be Coming to Market

A special purpose acquisition company, or (SPAC), (sometimes called a blank check company or an empty shell company), uses an initial public offering (IPO) to raise money it will use to purchase or merge with an existing company.

The acquisitions close after shareholder vote approval. It is not recommended to buy them prior to shareholder approval / acquisition close. If they do not get an approved acquisition, SPAC's can sometimes liquidate and distribute cash back to shareholders.

There are 3 SPAC's about to conduct shareholder votes to purchase Chinese Companies:

1) TMI - TM Entertainment & Media, Inc.

• Current Price: $7.50
• Cash per last 10-Q: $81m
• Current common O/S: 12.5m
• Cash Per current common O/S: $6.48

Company to Acquire: China MediaExpress - CME is China’s largest television advertising operator on inter-city express buses. The Company generates revenue by selling advertisements on its network of television displays installed on over 16,000 express buses originating in eleven of China’s most prosperous regions, including the four municipalities of Beijing, Shanghai, Tianjin and Chongqing and seven economically prosperous provinces, namely Guangdong, Jiangsu, Fujian, Sichuan, Hebei, Anhui and Hubei, which generate nearly half of China’s GDP.

• Date of Shareholder Vote on Acquisition: October 15, 2009
• Approximate Fully Diluted Shares upon closing: 33 million
• 2008 Net Income: $26m
• 2009 Projected Net Income: $42m
• 2009 Projected EPS: Approximately $1.27 ($42m/33m O/S)
• Competitor's P/E: FMCN trades at $12 with .65 avg EPS estimates: 18 P/E
• VISN trades at $8.72 with .39 avg EPS estimates: 22 P/E
• AMCN trades at $7 with .20 avg EPS estimates: 35 P/E

If TMI can achieve $1.27 EPS in 2009, a 15 P/E would be $19.05.

super-trades 1-12 month target range if deal is approved - $13-$20

Investor Presentation

2) TTY - 2020 ChinaCap Acquirco Inc (The Nike of China?)

• Current Price : $7.90
• Cash per last 10-Q - $68m
• Current common O/S - 10.5m
• Cash Per current common O/S = $6.48

Company to Acquire: WINDRACE INTERNATIONAL COMPANY LIMITED

Windrace designs, develops and engages in wholesale of footwear, apparel and accessories under its own brand, XIDELONG, in China. It is one of the leading domestic sports and leisurewear brands in China in terms of market share by sales revenue. Since operations began in 2002, Windrace has experienced significant growth in the mass market concentrated in the second and third tier cities in China and has established a market leading position as one of the top five Chinese sportswear brands. Windrace has three principal categories of products: (i) footwear, which comprises running, leisure, basketball, skateboarding and canvas footwear, (ii) apparel, which mainly comprises sports tops, pants, jackets, track suits and coats, and (iii) accessories, which mainly comprise bags, socks, hats and caps.

• Date of Shareholder Vote on Acquisition - October 19, 2009
• Approximate Fully Diluted Shares upon closing : 27 million
• 2008 Net Income : $24m
• 2009 Projected Net Income : $38m
• 2009 Projected EPS : Approximately $1.41 ($38m/27m O/S)
• Competitor's P/E : NKE trades at $63 with $3.63 avg EPS estimates = 17 P/E
• Per Page 7 of presentation, Chinese traded competitors avg 17 P/E

If TTY can achieve $1.41 EPS in 2009, a 15 P/E would be $21.15.

super-trades 1-12 month target range if deal is approved - $13-$20

Investor Presentation

3) IDI.U - IDEATION ACQUISITION

• Current Price : $7.85
• Cash per last 10-Q - $79m
• Current common O/S - 12.5m
• Cash Per current common O/S = $6.32

Company to Acquire : SearchMedia

SearchMedia is a leading nationwide multi-platform media company and one of the largest operators of integrated outdoor billboard and in-elevator advertising networks in China. SearchMedia currently operates a network of over 1,500 high-impact billboards with over 500,000 square feet of surface display area and one of China's largest networks of in-elevator advertisement panels consisting of over 175,000 frames in 57 cities throughout China. SearchMedia ranked first in market share of in-elevator advertising displays in 13 out of the 26 most affluent cities in China and ranked second in an additional nine of these cities, according to Nielsen Media Research. Additionally, SearchMedia operates a network of large-format light boxes in concourses of eight major subway lines in Shanghai. SearchMedia's core outdoor billboard and in-elevator platforms are complemented by its subway advertising platform, which together enable it to provide multi-platform, "one-stop shop" services for its local, national and international advertising clients that numbered more than 780 cumulatively from its inception to July 31, 2009.

• Date of Shareholder Vote on Acquisition - October 27, 2009
• Approximate Fully Diluted Shares upon closing : 22 million
• 2008 Net Income : $16m
• 2009 Projected Net Income : $26m
• 2009 Projected EPS : Approximately $1.18 ($26m/22m O/S)
• Competitor's P/E : FMCN trades at $12 with .65 avg EPS estimates = 18 P/E
• VISN trades at $8.72 with .39 avg EPS estimates = 22 P/E
• AMCN trades at $7 with .20 avg EPS estimates = 35 P/E

If IDI can achieve $1.18 EPS in 2009, a 15 P/E would be $17.70.

super-trades 1-12 month target range if deal is approved - $12-$17

Investor Presentation

Disclosure: As of the date of this article, I have not bought these stocks. I plan on waiting for the shareholder vote results.

Comments

[Paul Harper:]

great info & keep this sort of article coming, I tentatively followed you into TRIT & wish I had paid more attention to the original article, I was a little late, but am happy with its performance.

Oct 13 08:43 AM

[super-trade...:]

Thank you Paul

Oct 13 11:46 AM

[Thomas Kirc...:]

Where did you get the cash/share number from? Looks like it's fully diluted cash/share. But in a liquidation the warrants expire worthless so you don't need to account for them. TMI, for example, pays $7.91 for the no-votes and will have similar liquidation proceeds, as opposed to the $6.48c/s that you quote.
For more on SPAC liquidations, see my January post about SPAC liquidation arbitrage.

Oct 13 04:17 PM

[Ryan Morris:]

Why are you so cautious about waiting until after the votes? Won't that eat up a big part of the upside if they go through - don't you think they are very likely to be approved?

Oct 13 09:24 PM

[super-trade...:]

Thomas you are correct.....I should not have used fully diluted ....

Oct 14 05:49 AM

[Ryan Morris:]

Is there any chance of these deals not getting shareholder approval? I know under some circumstances where the shares trade below liquidation value and there is no appealing deal to be made. But if people wanted the cash at these prices they could just sell the shares to someone who would vote for it?

Oct 14 10:33 AM

[Cushman:]

Thomas can you expand on your comment that TMI warrants will expire worthless. Trying to get a handle on how warrants work and confused by your comment. TMI.WS currently trading at $1.80, you saying they will never be worth anything or that they shouldn't be included in share count since they will get exercised. Again a newbie just learning.

Thanks

Oct 18 09:36 AM

[Sparkspread:]

Thanks a lot for your info, Paul. I made some decent profit from your article. Just one question. How do you think HOL? It is announced to acquire Henda and voting date is sometime in November. Do you have any financial details on Hengda? Thanks a lot.

Oct 22 12:56 PM