"Focus Media has nearly $400M in cash and another $100M+ of held to maturity assets......"
And how much do they invest annually in the business? Answer: $160MM. More than CCME generates in net income. FMCN has its hands in a myriad of different niches. I would argue that their growth initiatives are a mistake, that the returns are not adequate to justify the expenditures. But they have a different view.
"If they aren't paying a dividend, does that mean they are "bilking" shareholders?"
No. No one has argued that the lack of a dividend is in itself evidence of fraud. With that said, I don't know why you would compare FMCN to CCME. There is no way that MW or anyone could make the kind of case against FMCN that has been made against CCME. Unlike CCME, there is no mystery with FMCN, no puzzle to be solved. Every media entity in China knows of the existence of that organization.
Now, lack of a dividend may not prove fraud, but payment of a sizable, regular dividend surely disproves it. That's why I think it would be an attractive option both for the company and for shareholders.
My concern with CCME is not really a consequence of the fact they haven't paid a dividend. It's more a consequence of the fact that if this business is what they claim it is, then they never would have gone public at 5X ttm earnings in some shady SPAC. They had no need for the cash. In fact, most of the cash from the consummation went to Zheng Cheng rather than the company ($31MM out of $44MM from warrant exercise, plus a $17MM dividend in 1H09). Judging from their earnout targets, they had to have known that the business was going to pick up like this. The amount of value that they knowingly gave away is huge. What have they gained from it? Nothing except unsavory controversy.
I don't want to buy a company from its owner unless I understand how that owner thinks he is going to benefit from selling the company to me. Otherwise, I will probably end up the fool in the transaction.
In the case of CCME, I don't understand how Zheng Cheng could have thought that this SPAC could have been worth it. Before going public, he had the ability to control all of the cash flows of a company set to generate $100MM annually. He sold 25% of those future cash flows to the public for a paltry one-time personal gain of about $31MM, despite the fact that neither he nor his business appears to have had any urgent need for the cash. Additionally, he relinquished the ability to readily control the 75% of the future cash flows that he retained as majority owner. He can no longer quickly access those cash flows, since the company is now publicly owned and tied up in the legal web of Wall Street.
It just doesn't make sense to me, so I'm on the sidelines. At a minimum, if the business has been accurately presented in the 10-K, I think the founders made a monstrous mistake.
With that said, given the fact that the cash has been audited by Deloitte, I think the probabilities say that the company is legit. I also think that given the short interest, the stock could very well bounce nicely from these levels, or at least from levels slightly lower than these levels (maybe around the $10 level). Sentiment is at a ridiculous low right now.
I'm just not comfortable with the story at this point to buy in as an investor. A strong, sizable, regular dividend of say 50 cents per quarter would make me a heck of a lot more comfortable--and rest assured, it would make a lot of other investors more comfortable as well.
AI
