Interesting short idea from Bronte (and a free course in forensic accounting): Focus Media (Chinese RTO)

For those who don’t read the outstanding Bronte Capital blog regularly, I can ony recommend: put it on your priority reading list.

After his not so well timed Richemont short, he has now set his eyes on Chinese company Focus Media from China.

Focus Media is a (on paper) fantastically profitable company from China wich was already subject of a Mudddy Waters report.

John Hempton has now a real series of very detailed posts about the company:

Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9
Part 10

Even if someone does not consider shorting shares, those post are a free lesson (and maybe the best available) on forensic balance sheet analysis I have ever seen.

Even David Einhorn’s classic Book “Fooling some people all the time” is not that much better and costs money.

Focus Media itself is an interesting “special situation”: It looks (and smells) like a typical Chinese fraud, but however there is a (conditional) bid out to take the company over at USD 27, including some high profile backers like Carlyle Group.

So its kind of a reverse merger arbitrage situation.If the bid falls through, the price might drop a lot. On the flip side, I doubt that the price will go much higher than the USD 27 even if Focus Media turns out to be the great profit machine.

After hitting ~ 25 USD, the stock price is now slowly drifting lower.

I find the idea so convincing, that I establish a 1% short position at yesterdays VWAP for Focus Media Group.


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