INTERNET – Shanda Breakup Nears End With Game Unit Sale
Bottom line: Chen Tianqiao’s sale of his Shanda Games stake marks his symbolic exit from online entertainment, and he will probably return to deal-making by setting up his own private equity firm.
The slow-motion breakup of the online entertainment empire of Shanda Interactive has taken a major step forward, with news that the company is selling its entire stake in its core online gaming unit. The news follows previous reports that Shanda Interactive had reached a deal to sell a controlling stake in its Cloudary online literature unit, and its sale earlier this year of a controlling stake in its struggling Ku6 Media (Nasdaq: KUTV) online video unit. All of this comes as Shanda Interactive’s chairman and founder Chen Tianqiao looks to disband his empire that was an early leader in online entertainment, but later languished as it was overtaken by rivals like NetEase (Nasdaq: NTES) and Tencent (HKEx: 700).
According to an official statement, Shanda Interactive has sold a controlling stake in its New York-listed Shanda Games (Nasdaq: GAME) unit to a group consisting of 2 entities, one led by the unit’s CEO Zhang Yingfeng and another led by a textile company based in interior Ningxia province. (company announcement) Following the sale, the Ningxia company owns 24 percent of Shanda Games’ ordinary shares and 40 percent of its voting shares; and Zhang’s group owns 9 percent of the company’s ordinary shares and 35 percent of its voting shares.
With the sale, Shanda Interactive no longer owns any shares in Shanda Games, and Chen Tianqiao will formally step down from the Shanda Games board. Chen launched a bid to privatize Shanda Games at a price of $6.90 per American Depositary Share (ADS) earlier this year, but will no longer pursue that deal following this latest development. Instead, the new owners said they intend to continue pursuing the privatization at the same terms.
Shanda Games shares were largely unchanged in the latest trading session, closing at $6.56, indicating investors believe there’s still a fairly good chance the privatization will move forward. More broadly speaking, the privatization reflected difficulties being faced by Shanda Games and many of its peers in the fiercely competitive online gaming space.
Shanda was once China’s leading online game company, and made headlines when it became the first Chinese player in the space to make a New York IPO in 2004. It later went into a number of other areas, including online literature, cloud computing and online video. But the company gradually became a second-tier player in most of its categories, passed by more nimble rivals like NetEase and Tencent in gaming and Youku Tudou (NYSE: YOKU) in online video.
Chen Tianqiao has always been fond of deal-making, and word first began to emerge last year that he might be looking to sell part or all of his fading empire to return to more financial-related work. He sold the controlling stake in Ku6 Media earlier this year (previous post), and earlier this month reportedly reached a deal to sell a controlling stake in Cloudary to a group led by the company’s CFO and including Tencent. (previous post)
This sale of Shanda Games is somewhat symbolic, since online games was Shanda’s original business and was Shanda Interactive’s most valuable asset with a current market value of nearly $1.8 billion. A few lingering questions do remain, such as whether Shanda Games’ privatization will succeed or collapse, as well as the fate of Chen’s few remaining assets including his cloud computing unit. Then there’s also the question of what will happen to Chen himself.
I suspect the Shanda Games privatization will ultimately succeed, since the new owners want it to happen and could have access to some financial resources that Chen lacked. I also expect Chen will sell off his few remaining assets by the middle of next year. As to Chen himself, I expect we could see him emerge as a deal-maker in China’s private equity sector, possibly setting up his own company to engage in both domestic and international M&A.
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