October 14, 2009 - 4:29pm EST by
2009 2010
Price: 7.60 EPS $1.27 na
Shares Out. (in M): 10 P/E 6.0x 6.0x
Market Cap (in $M): 76 P/FCF na na
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT na na

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TMI - TM Entertainment & Media, Inc.

This is a SPAC that has a deal to buy an advertising company in China with some very interesting amendments in the last month that make the deal MUCH more likely to be approved. The vote is tomorrow morning (Oct 15, 10am) - sorry for being so last minute but I didn't learn about it until recently! Should still be lots of room to participate even after the vote if it is approved - sorry if this is a bit rushed but I wanted to post it by 4pm today.

Basics on SPACs: Special Purpose Acquisition Companies are blank checks that raise money via an IPO by selling units (here: 1 share and 1 warrant at $5.50 strike). The proceeds go into a trust and if they can find a deal that gets approved, great, if not, then it's liquidated and the cash goes back to the shareholders from the trust and the warrants expire worthless. There are numerous SPACs out there (40 maybe?), and can be great opportunities if you understand the businesses they are getting into and willing to read all the SEC filings, as they are typically complex transactions that essentially are another way for a private company to go public. Most have earn-outs where shares are held in escrow until earnings targets are met.

They typically sign a definitive agreement with the company they are purchasing (contingent on any regulatory approval, material adverse clause, etc...) so that's normally a first step. Next step is actually getting the vote of approval from the shareholders of the SPAC. What has happened in the last year is a lot of these SPACs were used as a way to buy US Treasuries at an enhanced yield because if they trade below liquidation value, you can get a better return with no risk. So a bunch of activist hedge funds got into the business of buying a lot of units and blocking deals so they'd liquidate, I think this is happening less now, though IAN buying Patriot risk systems was just blocked for some reason a week ago? Not sure the whole story there. Typically 29.99% of the shareholders need to NOT vote to liquidate their shares from the trust (if less than 29.99% want to liquidate their shares, the deal goes through, potentially with a bit less cash).

If the shares sell on the open market for above the trust value per share, it would be silly to liquidate your shares. If they sell significantly below or the shareholder thinks the deal stinks then they should vote against it. There were some amendments here that make it different than other SPACs I'll mention at the end.
Background and basic details on this SPAC.

Company to Acquire: China MediaExpress - CME is China's largest television advertising operator on inter-city express buses. The Company generates revenue by selling advertisements on its network of television displays installed on over 16,000 express buses originating in eleven of China's most prosperous regions, including the four municipalities of Beijing, Shanghai, Tianjin and Chongqing and seven economically prosperous provinces, namely Guangdong, Jiangsu, Fujian, Sichuan, Hebei, Anhui and Hubei, which generate nearly half of China's GDP.

  • Date of Shareholder Vote on Acquisition: October 15, 2009 (10am meeting TOMORROW)
  • Approximate Fully Diluted Shares upon closing: 33 million
  • 2008 Net Income: $26m
  • 2009 Projected Net Income: $42m
  • 2009 Projected EPS: Approximately $1.27 ($42m/33m O/S)
  • Competitor's P/E: FMCN trades at $12 with .65 avg EPS estimates: 18 P/E
  • VISN trades at $8.72 with .39 avg EPS estimates: 22 P/E

• AMCN trades at $7 with .20 avg EPS estimates: 35 P/E


If TMI can achieve $1.27 EPS in 2009, a 15 P/E would be $19.05.

Two ways to get into this:
1) Buy the stock (TMI): $7.60 as of writing (Trust has about $7.96/sh liquidation value as of last S4)
---Upside (deal approved tomorrow): What you think the company is worth ($15 is reasonable I think)
---Downside (deal not approved, over 30% vote against deal): Trust liquidated and you get $7.91 cash sometime soon.

2) Buy the warrants (TMIWS): $0.80 as of writing (conversion of 5.50, exp in 2 years or so with a cap of $6 I think due to repurchase agreement)
---Upside (deal approved): Should at least be worth intrinsic value instantly ($2.10 currently), probably $3 including the time value if the stock doesn't move but the deal is approved and they don't become worthless.
---Downside (deal not approved): 100% loss - become worthless.

Clearly there is a very good risk/reward on the stock with virtually no downside unless you believe terrible prospects for CME. I don't have a strong opinion on the company, but it seems like a solid margin of safety.

The warrants are potentially more rewarding (though you can put less money into it if that's a problem for you) but more risky depending on what you think about the deal.

The amendments to the deal recently that are very interesting and I think give this a VERY significant chance of going through (I'm not going to say 100% but maybe 90%) include a disaggregation of the voting and liquidation preference. Basically they made it so that if you desired to liquidate your shares for the portion of the trust, that is a separate vote from whether you approve the deal. SO people who want to liquidate their shares (instead of just selling on the open market, which they could also easily do... record date for voting was sept 21 -ex record date = 3 days before? when stock was at 7.86 = tiny return to gain from a liquidation at 7.91...) don't have to block the deal for other people who want it.

Additionally, there is a provision in the amendment that basically gives the insiders nothing (they don't get their trust portion for their shares) if the deal doesn't go through. Insiders own 15%+ of the stock... 50% need to vote against the deal with the amendment to cancel it - seems extremely unlikely.

I can't imagine people who want to liquidate their shares would just block the deal for others, including the warrant holders, just to be jerks... I've also heard something about a guy named Goldstein who has been active in liquidating SPACs but for this one he owns 2M warrants... *can't remember where I saw this, in a hurry to get out by 4p...*

Bottom line, I think this deal is more than likely to go through, if it does, warrants will triple instantly (in next few days), stock should go up, it looks like a solid deal.



Shareholder vote on the deal oct 15th 10am in New York City

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