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Muddy Waters Releases 80 Page Report Disclosing Latest "Strong Sell" Target: Focus Media (Nasdaq: FMCN)

Tyler Durden's picture




 

If Sino Forest is any indication, the $3 billion market cap company is about to have a B -> M market cap transition. The reason: Muddy Waters just said FMCN could be the next Olympus: "FMCN has been fraudulently overstating the number of screens in its LCD network by approximately 50%. This is similar to China MediaExpress Holdings, Inc. (OTC: CCME), which we reported is a fraud on February 3, 2011. We therefore question whether FMCN’s core LCD business is viable."

From the report:

Muddy Waters rates Focus Media Holding Ltd. (NASDAQ: FMCN) shares a Strong Sell because of significant overstatement of the number of screens in its LCD network and its Olympus-style acquisition overpayments. The $1.1 billion in write-downs from its acquisitions exceed one-third of FMCN’s enterprise value, making FMCN’s acquisitive behavior more destructive than Olympus’s to shareholder value. FMCN insiders have sold at least $1.7 billion worth of stock (two-thirds of FMCN’s enterprise value) since FMCN’s IPO. At the same time, the insiders and their business associates further enrich themselves by trading in FMCN assets, while costing FMCN shareholders substantial sums of money.

  • FMCN has been fraudulently overstating the number of screens in its LCD network by approximately 50%. This is similar to China MediaExpress Holdings, Inc. (OTC: CCME), which we reported is a fraud on February 3, 2011. We therefore question whether FMCN’s core LCD business is viable.
  • Like Olympus, FMCN is significantly and deliberately overpaying for acquisitions, writing down $1.1 billion out of $1.6 billion in acquisitions since 2005. These write-downs are equivalent to one-third of FMCN’s present enterprise value.
  • Our research shows that FMCN has claimed to acquire, write down, and dispose of companies that it never actually purchased. Investors should be concerned about to where cash actually moved in these transactions, and about the integrity of reported results.
  • FMCN has written at least 21 acquisitions down to zero and then given them away for no consideration. We show that many of these write-downs are not justified. There are several possible nefarious reasons FMCN gives acquisitions away, including doing so may put FMCN’s problems beyond the reach of auditors.
  • Insiders have used FMCN as their counterparty in trading in and out of FMCN subsidiary Allyes, with several individuals earning a total of at least $70.1 million, while shareholders lost $159.6 million.
  • Sales of FMCN shares by insiders have netted them at least $1.7 billion since FMCN went public in 2005.

And no, John Paulson is not among the top holders:

Full report:

FMCN Strong Sell

 

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Mon, 11/21/2011 - 13:55 | 1899197 tallen
tallen's picture

I'm in for short 1k shares. Good luck everyone! DOWN WITH THE Fraudulent RTOs

 

[Edit] Right before it went HTB too. Epic

Mon, 11/21/2011 - 13:56 | 1899256 flacon
flacon's picture

Wasn't Muddy Waters totally wrong regarding Silver Standard Resources? Perhaps Muddy Waters is owned by the US Government...

Mon, 11/21/2011 - 14:06 | 1899288 tallen
tallen's picture

I think you mean SVM and no, the stock price of SVM has dived since. FMCN is a fraud, simple. Buy some puts while you can.

I've talked with Carson Block before, he's a fantastic entrepreneur. He travels China looking for companies overstating their earnings and releasing their findings.  Go look what happened to CCME

Mon, 11/21/2011 - 14:07 | 1899303 Captain Benny
Captain Benny's picture

Carson Block was absolutely wrong on Silvercorp and the KPMG audit proved it.  Pretty sad people still give him so much respect.

Mon, 11/21/2011 - 18:13 | 1900352 dlmaniac
dlmaniac's picture

Muddy water has no credibility any more.

Mon, 11/21/2011 - 14:20 | 1899342 flacon
flacon's picture

Tallen, you are correct, I meant Silvercorp Metals, not Silver Standard Resources. However didn't I read that SVM was found innocent of those Muddy Water (or anonymous) attacks?

Mon, 11/21/2011 - 14:26 | 1899371 tallen
tallen's picture

Oh sorry my bad, yeah the audit by KPMG was right on SVM. But price action does suggest otherwise.

 

Also, up $6k atm. Happy thanksgiving everyone

Mon, 11/21/2011 - 15:08 | 1899543 object_orient
object_orient's picture

Pfft. I make that much in a year.

Mon, 11/21/2011 - 13:43 | 1899209 slaughterer
slaughterer's picture

Fidelity must be paying Muddy Water to put together these hit pieces--look at the recent changes in Fidelity holding of FMCN

Mon, 11/21/2011 - 13:44 | 1899212 gmak
gmak's picture

It had a high may 2, 2011 of 37 1/4; and a low on Oct 3 of 16.33 - It looks like there was a bunch of short covering and a bounc up around 27. Latest price suggests that most of the meat is off of the bone.

Mon, 11/21/2011 - 14:23 | 1899359 gmak
gmak's picture

Looks like I was wrong. There was quite a bit of meat left and the piranha have had their fill. Wow!

 

Mea Culpa.

Mon, 11/21/2011 - 13:46 | 1899218 yabyum
yabyum's picture

Muddy waters & Howlin' wolf great blues players. With all this wonderful news....Damn right I got the blues.

Mon, 11/21/2011 - 13:49 | 1899224 firstdivision
firstdivision's picture

People seem to be buying off the public release of this report. LOL!

Some analyst and portfolio manager are having a reeeeally bad day at Citadel.

Mon, 11/21/2011 - 13:48 | 1899226 ItsDanger
ItsDanger's picture

I always hated FMCN and didnt trust their #'s.  But its a long hard road shorting some stocks and I abandoned it yrs ago.

Mon, 11/21/2011 - 13:55 | 1899250 JW n FL
JW n FL's picture

 

 

Pennies from Heaven!

Free Money!!

More for secruing less! how long until that trips us all up?

I could go on but why? trained rats do what they are trained to do!

Mon, 11/21/2011 - 13:57 | 1899260 jiggerjuice
jiggerjuice's picture

if you go to a first tier chinese city... say shanghai or beijing... you'll see focus media screens in front of EVERY elevator fucking EVERYWHERE. if they are lying about how many screens they have up, it's just because they've already superdupersaturated every possible place you could put one. seriously. in front of apartment building elevators at EACH tower in the complex. in every bank, every hotel, every fucking where for real. i saw one on a bus once. also in the passenger side headrest of taxis so the backseat people can see.

i always found it annoying. some of them have sound now. some of them also spit out coupons. the ads are inane, which is on par for chinese advertising.

dont know anything about the company itself, but it would be good for people's eyes if they would go away.

Mon, 11/21/2011 - 13:57 | 1899264 MoneyScraper
MoneyScraper's picture

Any thoughts on NZT (New Zealand Telecom) -- down 20% on Chorus Ltd spinoff.  Div yield stands at 13.3% presently...

Mon, 11/21/2011 - 14:24 | 1899361 Arthur
Arthur's picture

Stay away from NZT if you are looking to hold the stock.  There are many other better telecom stocks out there.

Mon, 11/21/2011 - 14:12 | 1899316 GittyUP
GittyUP's picture

Shorted 5k shares at $20 even.  ZH just made my thanksgiving!   Covered half at abouit $18 2 mins ago. 

Mon, 11/21/2011 - 14:13 | 1899322 tallen
tallen's picture

Nice work, I'm going to ride it all the way down. You should keep the other half!

Mon, 11/21/2011 - 14:31 | 1899386 GittyUP
GittyUP's picture

I did keep the other half and actually reshorted another 2k.  so still short 4500 shares at average $18.75 or so.   Getting me a big ole turkey!!

Mon, 11/21/2011 - 14:12 | 1899318 slaughterer
slaughterer's picture

From CCME to FMCN was not a hard leap to make.  MW is running out of ideas.  

Mon, 11/21/2011 - 14:18 | 1899333 bill1102inf
bill1102inf's picture

MAny Vaginas missed it. As soon as that muddy waters sell reco hit your inbox, you should have gone short 60,000 shares (or whatever YOU can afford), and your account would be up 20% today+++++

Mon, 11/21/2011 - 14:22 | 1899348 bill1102inf
bill1102inf's picture

Then you do it again at $16 and get out at $14, lol

Mon, 11/21/2011 - 14:18 | 1899334 shockadelika
shockadelika's picture

I had to chase the Dec 19 puts (I hate chasing...), got filled, already up $2.  I think I'll stick with this one for a few days/weeks.  Thanks Tyler, ZH.

Mon, 11/21/2011 - 14:23 | 1899354 bill1102inf
bill1102inf's picture

If your JUST seeing this, at $12.xx I would suggest you NOT get involved short here

Mon, 11/21/2011 - 14:23 | 1899357 i_dont_see_no_bubble
i_dont_see_no_bubble's picture

you can't make this stuff up:

http://www.thestreet.com/story/11318342/1/focus-media-holding-ltd-stock-upgraded-fmcn.html

The Street upgrades FMCN this morning...LOL

 

Mon, 11/21/2011 - 14:34 | 1899378 bill1102inf
bill1102inf's picture

........................

Mon, 11/21/2011 - 14:33 | 1899391 GittyUP
GittyUP's picture

stock halted LOL.  

Mon, 11/21/2011 - 14:35 | 1899408 Pig Brotha
Pig Brotha's picture

FMCN

Bought 12/17 18puts at 1.45pts 12.41pm

Sold at 2.90 12:58pm

 

EZ fuckin' money, thanks ZH a donation is on the way.

Mon, 11/21/2011 - 14:41 | 1899425 bill1102inf
bill1102inf's picture

damn brah, those are $8.xx now.. now $9.00 lol 

Mon, 11/21/2011 - 15:58 | 1899800 Pig Brotha
Pig Brotha's picture

Even when I win I loose...

Mon, 11/21/2011 - 14:43 | 1899429 saoldric
saoldric's picture

<3 ZH

Mon, 11/21/2011 - 15:07 | 1899534 Kat
Kat's picture

You're wrong to congratulate the outright shorts.  If the stock is closed, they can't get out of their shorts, but they have to pay the rebate (and I'm sure it's a neg rebate) on the last traded price.  So, if the stock doesn't open for trading, the outright shorts can't get out of their stock, but they're forced to pay to hold the position and they can very well lose everything they made on the stock in carry costs.

I can think of one story of a guy who was wiped out holding a short position while the stock was closed for several months and they jacked up the neg rebate to 100%. 

You're better off with options.

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kevin22's picture

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