Fushi Copperweld Looks Risky

Shares of Fushi Copperweld (FSIN) are up 20% year to date, having been up only slightly for the year when Muddy Waters Research labeled the company a fraud risk in April. That had sent the stock down substantially. Muddy Waters has had success in the past identifying fraudulent Chinese companies and tends to draw a significant reaction in the market when it releases a report. The stock has since more than recovered, with a state-owned lender providing enough capital to execute a transaction that will acquire all Fushi Copperweld shares for $9.50 apiece, a small premium to Wednesday's closing price of $9.29. According to its most recent 10-Q, a vote on the transaction (which is technically a merger) will occur Dec. 11. The board has recommended that the transaction be approved.

The producer of wires and cables with copper coatings has seen business stagnate. In the third quarter, revenue was down slightly from the same period in 2011, continuing a trend from the first half of the year. In addition, operating expenses were up substantially, and so the company's earnings slipped 14%. Some of this was probably due to weaker Chinese growth (about 80% of Fushi's sales are to Chinese customers). Cash flow from operations plummeted in the first nine months of 2012: $16 million vs. $40 million in the first nine months of last year. Fushi reported a total of $218 million in cash and cash equivalents on its balance sheet....245 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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