The Back-Door Play on Advertising in China (IDI, FMCN, VISN, AMCN, LAMR, CCO)

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Ideation Acquisition Corp. (AMEX: IDI) gave us a volume spike alert over at VSInvestor.com, and it is very unusual to see a special purpose acquisition company suddenly have exponential trading volume. The company has a pending merger vote and it gave an investor presentation just last week at the ROTH China Conference.  Today’s interest is after Ladenburg Thalmann picked up new analyst coverage with a “BUY” rating ahead of a pending merger vote with SearchMedia, an outdoor billboard and in-elevator advertiser in China.

Investors are starting to treat this SPAC as a pre-merger entrance into the Chinese advertising market.  This in a sense gives small-cap investors a chance to buy into what they will hope can become the next Focus Media Holding Ltd. (NASDAQ: FMCN), the larger pure-play Chinese advertising stock with a $1.88 billion market cap… Or even the other player called VisionChina Media Inc. (NASDAQ: VISN) with a $716 million value today after a 3% gain, or the AirMedia Group Inc. (NASDAQ: AMCN) with a $554 million market cap after an 8% gain today.  It will be a stretch to compare this smaller player to Clear Channel Outdoor Holdings Inc. (NYSE: CCO) or to Lamar Advertising Co. (NASDAQ: LAMR), but those are the clear leaders in America for U.S. investors.

As of a June 30 date, Ideation said its trust account held about $78.8 million (including deferred underwriting fees of US$2.7 million) from the IPO proceeds raised in November 2007 and it noted that its per share liquidation value of the trust was about $7.8815.  The size of the merger per a presentation is $174 million and is listed as 44% of the fully diluted combined entity interest.  The ultimate value of the transaction is dependent upon how much GAAP income the company produces.

We wanted to get some outside views on this besides the firm that started coverage today.  According to our friends over at SPACupdate.com, “Ideation is one of three blank checks trading above its redemption value, and for good cause. Its deal, yet another where a SPAC will succeed buying a Chinese asset, has great predecessors in terms of its ability to generate value. TM Entertainment & Media, a China-focused SPAC that just brought public an advertising company, has kept its head above water post-deal announcement, something that SPACs have had difficulty doing for the last 18 months.”

Today is active, but the real interest started last week from the ROTH China investor conference.  As you will see, the volume was much larger then:

DATE     VOLUME… Close
OCT. 16: 339,300.. $8.01
OCT. 15: 425,800.. $7.95
OCT. 14: 983,500.. $7.95

Our own take is that part of the excitement is the Chinese market and the recovery prospects there.  This strategy may have seemed full of nothing but risk early in 2009.  But now that the global recovery has begun, China is perhaps on the front-line of recovery compared to the United States where many feel we are the slowest to recover.

SPACupdate.com also spoke of other Chinese deals and noted, “There are other China-focused SPACs that have performed outstandingly well after bringing companies public: Spring Creek Acquisition Co.’s merger resulted in its stock exploding over time, to about $32 per share. Pantheon China; ChinaGrowth North and ChinaGrowth South; these are all SPACs that directed capital at Asia and successfully found value-generating targets. China Opportunity Acquisition Co., led by Harry Edelson is yet another. We would not be surprised to see future SPACs emerging either from the TSX, or, still, domestically, that look to capitalize on M&A opportunities in China.”

The Roth presentation is here for a full background piece and for terms of the deal.  The date to watch now is for Ideation’s Special Meeting of Stockholders, which  will be held on October 27, 2009 at 8:30 am Eastern Time at the offices of Akerman Senterfitt in Miami, Florida.  There is no such thing as a done deal after everything we have seen over the last year, but investors are betting on the future value of this merger ahead of any formal closing.

Jon C. Ogg
October 19, 2009

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