FINANCE: Shanda Tries Finance With Russell Investments Bid
Bottom line: Shanda’s participation in a bid for a US financial firm marks the start of the company’s move into finance, and reflects the broader rise of a new group of major private equity investors in Shanghai.
Following its failed bid to become a major online entertainment company, the Shanghai-based Shanda is trying its hand at deal-making, with word that it’s part of a group making a bid for major US financial firm Russell Investments. Shanda’s entry to the private equity realm marks a growing trend that is seeing Shanghai-based companies emerge as some of China’s most aggressive homegrown private equity investors.
That trend is being led by Fosun International (HKEx: 656), which has been one of China’s biggest international buyers these last 2 years with a number of high-profile investments in Europe and North America. More recently Fosun has been joined by the aggressive China Media Group, which is connected to Shanghai’s leading media company SMG, and whose name is also showing up on a growing number of high profile investments. And then there’s the recently formed China Minsheng Investment Corp, an offshoot of the entrepreneurial China Minsheng Bank (HKEx: 1988; Shanghai: 600016), which is also being quite aggressive.
I’ll return to the Shanghai part of the story at the end of this post, but first let’s review the latest headlines that have Shanda joining with fellow Chinese investor Citic Group and US-based Towers Watson in the bid for Russell Investments. (English article) The reports say Shanda’s participation is actually coming from its Shanda Games (Nasdaq: GAME) unit, which is in the process of de-listing from New York due to undervaluation.
The reports say the deal is expected to carry a price tag of about $1.5 billion, meaning that Shanda probably would provide up to $500 million as its part of the purchase of Russell, which is owned by the London Stock Exchange Group (London: LSE). Shanda is pursuing the deal as it seeks to transform away from its core entertainment business into a financial services company.
I’ve been predicting this transformation for Shanda for quite a while now. The company’s founder Chen Tianqiao isn’t very highly regarded for his people and management skills, and has always been more respected as a deal-maker. Thus his role at the head of a private equity investment firm looks far more suited to his personality, and this bid for Russell Investments is likely to be the first of many such bids for Chen.
Shanda began its life as an online game operator, and was China’s first such company to make a public listing back in 2004. Chen went on to open related subsidiaries in an array of areas, including cloud computing, online literature and video. But all of those ended up as second-tier players and were plagued by management problems, reflecting Chen’s own lack of management skills. He finally decided to get out of the business, and has been quietly selling off his various assets over the last year. (previous post)
If and when those sales finally wrap up, Chen will be left with a big chunk of cash and also the Shanda name for this new chapter of his life as a private equity investor. I suspect that this Russell bid is just the first of several where Shanda’s name will appear this year, and that many of those will be valued at similar levels. I would also expect that Chen will quickly drop the word “Games” from his investment company’s name, and probably rename itself something like Shanda Capital or Shanda Investments.
Chen’s arrival to the private equity realm will further help to boost Shanghai’s quickly rising profile as a leading hub for big finance. China currently has several big private equity investors like Citic and HNA Group, but these new Shanghai investors differ in that most are more entrepreneurial and often come from private backgrounds. This Shanghai group is being led by Fosun, whose recent purchases include French resort operator Club Med and One Chase Manhattan Plaza in New York. But China Media Group and Minsheng Capital are also getting quite aggressive, reflecting Shanghai’s emerging role as a financial center for not only China but also the bigger Asia region.
Related posts:
