INTERNET – Sale Rumors Swirl Around Shanda Cloudary
Bottom line: Shanda is likely to sell a controlling stake of its Cloudary online literature unit to an outside buyer, possibly Tencent, as part of a drive to hand over management of its major units to strategic partners.
The slow-motion break-up of former online entertainment high-flyer Shanda Interactive is back in the headlines, with reports the company has sold its online literature unit to Internet heavyweight Tencent (HKEx: 700). This particular rumor looks logical enough for reasons I’ll give shortly. But I’ve heard so many rumors about sale of part of all of Shanda over the past year that I’ll only believe this latest report when we hear an official confirmation. What’s clear from these latest reports is that Shanda founder and chairman Chen Tianqiao continues to look for opportunities to sell part or all of his company, as he reportedly grows restless with his lackluster businesses whose growth has stalled.
According to the latest reports, Shanda has finalized terms of a sale for the literature unit, known as Cloudary, to Tencent or possibly a larger group led by Tencent. (English article; Chinese article) One report says that leading search engine Baidu (Nasdaq: BIDU) may also be part of the buyer group, and that the deal values Cloudary at about 4-5 billion yuan, or around $650 million. Another report cites a high-level Shanda official saying the company has sold a strategic stake in Cloudary to an outside investor, but that the investor isn’t a publicly listed company.
I’ve followed Cloudary for quite a while now, and the company certainly has a bumpy history. It was one of the earliest major players to recognize the big potential for online written material like news and literature, whose popularity has exploded in the last 2 years with the rapid rise of big-screen smartphones that allow for easy reading from mobile devices. The company was planning a New York IPO as early as 2011, but had to abandon the offering due to weak market conditions. (previous post)
Cloudary was trying to remount an IPO bid when a large group of its mid-level managers suddenly left the company early last year to form their own rival firm. That splinter group later received a major investment from Tencent, which is one reason why a sale of Cloudary to Tencent now might seem logical. Such a sale would allow Tencent to reunite Cloudary with its previous management team, which could bring some needed size and stability back to the company.
From a broader perspective, such a sale would be consistent with persistent rumors over the last year that Chen Tianqiao wants to dismantle his Shanda empire by either selling off the company in its entirety or by selling off its various assets individually. Rumors emerged earlier this year that Chen was in talks to sell the entire company to e-commerce giant Alibaba (NYSE: BABA), but such a deal was never announced.
More recently, Shanda sold a controlling 41 percent of its struggling Ku6 Media (Nasdaq: KUTV) unit in April, handing over management to a company called iSpeak. Chen has also launched a bid to privatize his group’s largest unit, Shanda Games (Nasdaq: GAME), which initially included participation in the buyout group by rival game operator Perfect World (Nasdaq: PWRD). But Perfect World recently withdrew from the buyer group in a sign of trouble for the bid, and Shanda Games last week also announced the resignation of its CEO.
All of this paints a picture of a company in a bit of flux and turmoil. The broader picture appears to have Chen looking for strategic investors for most or all of his company’s key units. Such investors would buy controlling stakes and take over management of each unit, leaving Shanda as a passive investor with a minority stake. I expect we could hear an announcement of that nature soon for Cloudary, and we could possibly see a similar tie-up for Shanda Games if and when it finalizes its privatization.
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