Yuanxi Zhang
Long/short equity, value, special situations

Charm Communications: A Safe Deal With 34.0% Annualized Return

Recommendation: Long Charm Communications (NASDAQ:CHRM) at $4.47

Target Price: $4.65

Thesis

We believe Charm Communications is likely to close the go-private deal by late September. The buyer consortium owns shares representing 68.7% of total votes, enabling the buyer consortium to obtain the requisite shareholder approval. The go-private deal values Charm Communication at a deep discount compared with public-traded comparables and precedent transactions, so the downside is limited. Dissatisfied with the offer price, the second largest shareholder may negotiate a higher offer price for minority shareholders, providing optionality in this situation. As a result of these factors, we recommend a long position in the stock.

Businesses overview

Charm Communications is a leading advertising agency group in China that offers...

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