Fab Universal (NYSE:FAB) announced that the very famous investor Jim Rogers long beloved by Financial TV has joined the Board of Directors. Fab is a small cap trading under $5. They are in the digital media space in China and creating lots of cash flow. So why would Jim Rogers accept a seat on the Board. He is rich and another buck may not be as exciting as it used to be. If he truly believes in the potential and no one doubts his integrity why not just buy a lot of shares, let the market know you are long and wait to cash in.
The Chinese market is seductive and enigmatic. Digital is a real play for the future. Jim Rogers is long recognized as an astute commodities investor and China is a huge commodities buyer. So he gets into China with a digital play. Google (Nasdaq:GOOG) has difficulties in China. Yahoo (Nasdaq:YHOO) has stubbed its toe in China and is still not sure if it was cheated outright or just diddled a little in the back seat of puppy love. But someone with deep pocketed books will most likely appreciate all the heavy lifting that`s been done and open up the cheque book. Amazon (Nasdaq:AMZN) Netflix (Nasdaq:NFLX) Facebook (Nasdaq:FB) are all looking for big bold plays and think nothing of billion dollar acquisitions. So on a current market cap of $72 million the numbers will work out rather well.
The communist party is still totalitarian if it got pushed strongly enough. But the China market is huge and enticing.
Fab Universal is still readily unknown. The Wall Street Journal at time of writing still says no news on Fab for the past two years. So this is what I think Jim Rogers is up to as he swings for the fences.
Buy in and arrange some preferably financing.
Expand services and get yourself on the map. Annual revenues are just in the tens of millions. With a compelling product and enough working capital the China market can be very kind to shareholders.
So as you are expanding and growing and creating cash flow and profits you will attract the attention of the big dogs who will want to buy a growing concern in the China Market. That’s when the take-over offer is made at huge multiples and Jim Rogers cashes in yet again. So far so good. I can just see investors hit the buy button very hard.
Oh look here comes the Black Swan. We may have to wring its neck. The China market is not a private property driven liberal democracy with enshrined rights of ownership. They play by their rules which they make up as time goes on. Fab Universal will need to keep the Chinese political and economic power élite engaged, warm and fuzzy. If Beijing decides it wants to crown another king it will do so. The Chinese consumer will be switched over to other choices and forget about Fab.
The risk is political. We are speaking about media which politicians will watch over carefully. If Jim Rogers understands the China Market he needs to ensure the political factors are well ties down and stay in favourable trends as time goes on.
George Gutowski writes from a caveat emptor perspective.