GEO Investing

amcn stock performance airport advertisingAirMedia Group Inc.’s (AMCN) stock performance over the last few days is not without reason.  News out of China pointed to AMCN receiving an investment from a China A share listed company that ostensibly valued the company at over $8 per share.   We pointed out this information arbitrage to our premium members, giving them a quick chance to take advantage of the potential elevation in AMCN’s stock price.

We were interested in the continued strong performance of the stock yesterday, which prompted us to take a closer look at what was driving the move. As a result, we found that there was a Chinese analyst report (See Google translated version) from Sinolink Securities (a Chinese securities firm) that thinks AMCN’s sale of 5% of its advertising business to the China A share company is just the beginning. The report stated that there is a big possibility that AMCN will sell the rest of the interest of its profitable advertising business. In addition, the analyst is also bullish on the company’s Wi-Fi business in flights and on trains.

AMCN Further Stock Performance Could be Driven by Potential Cash Deal

If AMCN sells the rest of its advertising business interest and the deal is based on the same valuation as the previous 5% interest sale, then AMCN’s stock performance could potentially be driven by the company theoretically receiving an aggregate amount of $467 million in cash (assuming it’s an all cash deal). However, the total market cap of AMCN is only close to $180 million as of yesterday. This big increase of the cash on its balance sheet could give shareholders substantial value, as long as the company efficiently deploys this capital.

There here are three things we want to keep in mind with respect to this story:

  • We are not sure whether and when AMCN would sell the rest of interest to the China A share company.
  • Even if after AMCN sells the rest of the interest, we are not sure whether it’s going to be an all cash deal or a stock-cash deal. If it goes through, and it’s a stock-cash deal, then AMCN may not get as much cash as we expect. In addition, even if it’s an all cash deal, we are still not sure whether the company would be willing to deploy that capital back to shareholders (via buyback or special dividend, perhaps).
  • After the sale of its profitable advertising business, the company would be left with two unprofitable segments of its company.

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