Focus Media Holding Limited (FMCN): Will the Deal Go Through Despite Carson Block’s Accusations?

Mr. Block has profited handsomely from his boldness. After releasing a report that detailed these allegations, his firm mounted an aggressive short-selling campaign that briefly devalued Focus Media’s stock by nearly 50 percent. Although the stock has since recovered about half of its pre-scandal value, it remains highly volatile and unfriendly to retail investors.

It remains difficult to ascertain the veracity of Mr. Block’s charges. Focus Media’s management team points to inconsistencies within the Muddy Waters report as evidence that the charges are baseless. Meanwhile, the company enjoys a solid cash flow and steadily-increasing revenues. Many investors see the Carlyle Group’s proposed takeover as a keen bid to snap up a relatively strong company during a transitory period of uncertainty. At its current levels, Focus Media represents a relative bargain for investors looking to profit from the deal.

The proposed takeover is still awaiting approval from Focus Media’s board of directors as well as its shareholders. Given that the Carlyle-led consortium appears willing to pay a significant premium for the company relative to its current stock price, it appears likely that both classes will accept the deal. However, further defections by parties to the buyout could yet delay or scuttle the deal. In addition, renewed downward pressure from Muddy Waters or another short seller could render the deal less attractive and lead to a renegotiation of its terms.

Barring any of these complications, the deal appears likely to close during the first quarter of 2013.

The article Will the Deal Go Through Despite Carson Block’s Accusations? originally appeared on Fool.com.

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