NetEase Name Change: Spin-Off Coming 网易更名：预示业务分拆

By newsdoug on March 8, 2012

So, when is the dropping of the .com suffix from a company’s name big news? The answer: When you’re an Internet veteran like NetEase (Nasdaq: NTES), whose new announcement that it plans to formally change its name from NetEase.com to simply NetEase Inc will fuel expectation that the company is nearing a spin-off of its portal business, its oldest asset since it originally went public in the late 1990s. In a decidedly low-key announcement, NetEase said it has scheduled a rare extraordinary general shareholder meeting for March 29, at which owners of its stock will be asked to approve the name change. (company announcement) China Internet historians will note that NetEase began its life as a web portal operator, competing directly with China’s other 2 web stalwarts, Sina (Nasdaq: SINA) and Sohu (Nasdaq: SOHU). But its path diverged about a decade ago, when it found more success as an operator of online games, which now account for the large majority of its revenue. During that time, the company’s portal business, which includes a popular email service, started to languish, even though it remains a well-known and respected brand to this day. Realizing there may still be some value in the portal business, NetEase made signals last year that it might spin off the unit in a bid to breathe new life into it by making it stand on its own. (previous post) Since then, industry buzz has also surfaced that the portal could make a nice asset to sell or put into a joint venture with another Internet site operator, which could use the portal to diversify its own holdings and drive traffic to its core site. The number of such potential buyers could be huge, running the range from social networking sites like Renren (NYSE: RENN) to video sites like Youku (NYSE: YOKU) and perhaps even one or 2 e-commerce sites like Dangdang (NYSE: DANG). I haven’t heard any specific rumors about M&A talks, but this name change by NetEase looks like it is paving the way for the company to make a big move soon. If I were a gambler, I would bet we will see some kind of deal involving the portal business by September. What that deal will be is still probably under discussion, with a sale, joint venture or even a spin-off into a separate publicly listed company all possible. I think the joint venture is probably the most likely, as NetEase would like to retain a stake in this asset since it is so closely identified with the company. At the same time, the joint venture structure would allow NetEase to delegate management of the portal to someone else to let it focus on its core online game business.

Bottom line: NetEase’s pending name change means a spin-off of its portal business is likely in the next 6 months, with a new joint venture the most likely option.

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