INTERNET: The End Finally Nears For Shanda Games
Bottom line: Shanda Games is likely to close its privatization by next month, as group founder Chen Tianqiao finishes dismantling his entertainment empire to try a possible new career in private equity.
The long and tortured privatization Shanda Games (Nasdaq: GAME) could finally be near, with word that a group bidding for the faded online gaming giant has finalized its funding for a $1.9 billion buyout. If and when this buyout finally closes, it will mark the end of a privatization bid that began more than a year ago. That would easily make it the most drawn out such buyout among about a dozen major Chinese companies that have left New York over the last 2 years due to lack of interest from investors.
According to its latest announcement, Shanda Games has formally signed a buyout deal with a group of buyers anchored in the dusty interior province of Ningxia. (company announcement; Chinese article) The group will offer $7.10 for every Shanda Games American Depositary Share (ADS), representing a slight 3 percent increase from the original offer of $6.90 when Shanda Games first received a buyout offer back in January 2013.
The real Shanda Games story actually dates back about a decade ago, when the company’s parent, Shanda Interactive, became the first Chinese game operator to make an IPO in New York. Shanda’s financially savvy founder Chen Tianqiao went on to discuss plans to create a major online entertainment empire, and ultimately hoped to make separate listings for that empire’s many units, including games, literature and online video.
Chen made his first move in that direction by separately listing Shanda Games in 2009. But the newly listed company’s shares moved steadily downward after that as its revenue stagnated and even started to contract in China’s fiercely competitive online game market. As a result, the stock was trading at about a third of its $12.50 IPO price when it received the original buyout offer in January 2014.
The original deal looked quite interesting, as one member of the buyout group was Perfect World (Nasdaq: PWRD), another mid-sized game operator that was also struggling but better run than Shanda. But then Perfect World pulled out of the deal along with several members of the original buyer group, raising questions about whether the entire plan would collapse.
I have to credit Chen Tianqiao for not giving up, though he must have exhausted many of his resources before finally finding a buyer in Ningxia. The buyer group also got a boost last month when media reported that 2 major brokerages, Orient Securities (Shanghai: 600958) and Haitong Securities (HKEx: 6837; Shanghai: 600837), would join the bid. (previous post) That pair appears to be represented in the final buying group by an entity called Orient Hongtai (Hong Kong).
This announcement appears to show the Shanda Games privatization saga could finally be nearing an end, which would come about 15 months after the original plan was disclosed. One of the previous longest privatizations before that was for outdoor advertising specialist Focus Media, whose own buyout plan was announced in the summer of 2012, only to run into financing problems before finally closing 9 months later.
The Shanda Games privatization is the biggest piece in Chen’s plan to dismantle his former entertainment empire, which consists mostly of companies that were once leaders in their spaces but got overtaken by competitors. Other pieces that have been sold or are in that process include the company’s Cloudary online literature unit, and its Ku6 Media video unit.
At the end of the day, I have to congratulate Chen for his perseverance in dismantling his former empire, even in the face of numerous setbacks. I suspect we may see him reappear as a private equity man after his Shanda dissolution is complete, similar to Guo Guangchang at Fosun International (HKEx: 656) and Neil Shen at Sequoia Capital, who all seem to excel at and prefer deal-making to running actual businesses.
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