Information Arbitrage Alert
In this morning’s premium member email we stated that we were:
Taking a Close Look At VISN News
We came across information in China not released in U.S. that $VISN ($5.39) reached an agreement with one China A share listed company that values one of its subsidiaries at ~$118M.
The payment for VISN subsidiary is being made through transfer of the shares owned by the controlling shareholder of the acquiring company in the A share market.
We are continuing our due diligence on this development.
VISN was trading at around $5.80 at the time of the email alert and are currently trading near $9.00.
No doubt, VisionChina Media (NASDAQ: VISN) has many caveats and operational issues surrounding its story that challenge its survival. But nonetheless, we came across information in China not released in U.S. that $VISN reached an agreement with a China A share listed company, Ledman Optoelectronic Co., Ltd. (SZ300162) that values one of its subsidiaries (Subway Mobile TV Advertising Business) at ~$118M .
Details Released In China But Not In The United States
The payment for Subway Mobile is being made through a two step process so as not to violate new temporary rules making it harder for certain business combination transactions to take place in China.
On August 20, 2016 (China Time), Ledman issued an announcement that Ledman and VISN reached an agreement to purchase 49% of the subway mobile TV advertising business from VISN for an aggregate amount of RMB 382.2 million (~USD 58 million) in cash, valuing the subsidiary at a total price of RMB 780 million ( ~USD 118 million) . However, VISN will use the proceeds to mainly purchase the shares of Ledman, which was previously owned by Ledman’s controlling shareholder. In other words, per this transaction, VISN will obtain roughly USD 48.7 million worth of Ledman’s stock in the A share market and USD 9.3 million in cash, and VISN still has 51% of the equity interest in its subway mobile TV advertising business. The transaction is pending the approval from Ledman’s shareholders.
So...
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Upon shareholder approval, Ledman will pay $58 million to Subway Mobile for a 49% stake in the company.
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VISN will then buy $48.7 million worth of Ledman shares owned by its controlling shareholder, keeping the rest of $9.3 million cash.
According to VISN SEC filings, the company has roughly 5.18 million ADS outstanding. Thus this $58 million worth of stock in Ledman and cash translates into approximately $11.2 per ADS for VISN. The implied value of this transaction to the entire Subway Mobile business works out to approximately $118 million or $22.80.
It is unclear why VISN hasn’t issued a press release regarding this transaction yet.
Refresher Of What Was Been Released In United States
Ledman’s first attempted to consummate a deal with VISN in February 2016, but had to pull the proposed deal due to a new regulatory environment that would have made the deal difficult to close. Apparently, now the new Deal only needs shareholder approval. We presume that if the deal closes investors will begin to speculate that Ledman will eventually make a bid for the the rest of Subway Mobile, potentially in cash, when the regulatory environment cools down.
History
On February 15, 2016, VISN announced an equity transfer agreement with Ledman Optoelectronic Co., Ltd. (SZ300162):
“Its consolidated variable interest entities VisionChina Media Group Co., Ltd. ("VisionChina Media Group") and Shenzhen HDTV Industrial Investment Co., Ltd. ("Shenzhen HDTV") (collectively "VisionChina Subsidiaries" or the "Sellers"), have entered into an equity transfer agreement and a profit compensation agreement (the "Transaction") to sell all of VisionChina Media's subway mobile TV advertising business ("Target Business") to Ledman Optoelectronic Co., Ltd. ("Ledman") for an aggregate consideration of RMB780 million (US$119 million) (the "Consideration"). Ledman is a leading manufacturer and distributor of LED products in China, and listed on the Shenzhen Stock Exchange (300162.SZ).”
On July 22, 2016, VISN provided an update on the proposed sale of the Company's subway mobile TV advertising business to Ledman Optoelectronic Co., Ltd. The Company was informed that Ledman submitted to the China Securities Regulatory Commission ("CSRC") an application for suspension of the Transaction pending uncertainties surrounding government regulatory policies pertaining to foreign-listed Chinese companies relisting in China's domestic stock market.
Caveats
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We have not performed any on the ground due diligence on the company
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According to its 3rd quarter 2016, the company has equity deficit of $20.3 million
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The company has yet to file its 20F for 2015
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The company has $55.6 million in convertible notes due within one year per its Q3 2016 balance sheet, which is almost twice the worth of its market cap
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Legal Issues: A Cayman Islands Ruling in July this year ordered that VisionChina Media pay the Plaintiffs:
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approximately $59.4 million (the "Judgment Amount")
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interest at the rate of 9% per annum calculated from November 16, 2010 as to $30 million and from November 16, 2011 as to the remaining portion of the Judgment Amount, until such Judgment Amount is paid in full and
- costs on the indemnity basis to be taxed if not agreed.
