Shares of Chinese based media company Focus Media Holding Ltd (NASDAQ:FMCN) traded sharply higher on Monday following news that a group including CEO Jason Nanchun Jiang has offered to take the company private for $27 per American depository share, a 15% premium to Friday's closing price. I believe two other Chinese companies, Renren (NYSE:RENN), and DangDang (NYSE:DANG) may follow FMCN private.
FMCN data by YCharts
Renren & DangDang
As shown by the chart below, both RENN and DANG have done nothing but trade down since their respective IPO's.
RENN data by YCharts
Undoubtedly, management at both RENN & DANG must be very disappointed with how their shares have performed. As discussed in a previous article on Seeking Alpha, DangDang Continues Sliding Despite Promises Of Insider Buying, co-founder Peggy Yu Yu told CNBC:
DangDang stock has fallen so much recently. I think it's at such a price I cannot resist buying it … the performance of the stock deviates from what's going on in reality ... As executive and founder of the company, what I do is to make sure that our employees are not disheartened by the fall of the value of their stock options. At the same time, we sell as many products on DangDang as possible and deliver as fast as possible so we can deliver a good performance and financial performance …
Apparently, RENN insiders also think their shares are undervalued as RENN has been buying back massive amounts of stock.
In addition to being buyout candidates because of their weak stock performance, RENN & DANG also both feature very strong balance sheets. RENN has $922 million or $2.38 per share in cash and no debt. Similarly, DANG has $218 million or $2.74 per share in cash and no debt. The huge cash positions make a buyout more likely as it really means that the value of the companies themselves is significantly lower than the share prices indicate.
Interestingly, both RENN and DANG are still led by their respective co-founders. Guoquing Li, a co-founder of DANG, currently serves as CEO. Joseph Chen, founder of RENN, currently serves as CEO. It would makes sense that these co-founders would be open to the idea of a buyout because they would likely be able to maintain control of their companies.
Both RENN and DANG have relatively small market caps. RENN is worth just over $1.5 billion and DANG is worth $432 million. Comparably, FMCN was bought out for more than $3 billion.
Conditions seem right for RENN and DANG to follow FMCN in going private. While it may be premature to speculate on a takeover, I would not want to be short RENN or DANG after the FMCN deal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.