VisionChina Media Higher In Pre-Market Over Lawsuit (VISN, DMG)

VisionChina Sues DMG for Financial Fraud The merger between VisionChina Media Inc. VISN, an operator of out-of-home advertising network, and Digital Media Group (DMG), a metro TV advertising network operator, which was nailed down one year ago, has changed dramatically. Yesterday, VisionChina announced that it has filed a lawsuit against DMG in an US court, accusing the latter's shareholders and top management for financial fraud, alluring the former to acquire assets from the latter at a virtual high price of USD 160 million. The shareholders of DMG will face huge compensation if VisionChina wins the lawsuit. Reporters find out that top executives of VisionChina are handling the lawsuit in the US and CEO of DMG made a response to the lawsuit promptly after the former's announcement, saying that the truth is not like the saying of VisionChina and they will notify the public of the progress of the lawsuit in time. In October 2009, VisionChina announced in Shanghai the acquisition of DMG for USD 160 million, widening the coverage of its advertising network from buses to metros. According to the agreement between both sides, the consideration of the deal will be paid in cash and stock. USD 100 million will be given to DMG right after the acquisition and the rest USD 60 million will be gotten by the company for two times respectively at the one-year and two-year anniversaries of the deal. By far, VisionChina has paid USD 40 million in cash and placed shares worth USD 60 million to DMG and the remaining USD 60 million will be given to the latter in cash at the beginning of 2011 and 2012 respectively as planned. The subpoena shows that VisionChina, together with wholly owned subsidiary VisionBest, will sue Gobi Partners, Oak Investment Partners, Sierra Ventures and other defendants for misleading the prosecutor in believing the financial condition and performance report of DMG and acquiring considerable profits from the payment of VisionChina. Hence, VisionChina refuses to pay the rest consideration of USD 60 million and demands the shareholders and investors of DMG to return USD 100 million that has been paid and make compensation to the prosecutor. VisionChina points out that the impairment of creditworthiness and intangible assets from the acquisition of DMG had ranged from USD 85.1 million to USD 89.5 million before September 30, 2010. The lawsuit has affected the stock price of VisionChina, which dropped 4.16% on December 28, 2010, closing at USD 3.92 per shar