Shanda Overhaul Continues With Ku6 Media Sale
Earlier reports that the founder of online entertainment company Shanda was looking to sell his empire have taken an interesting twist, with word that a buyer has emerged for the company’s struggling Ku6 Media (Nasdaq: KUTV) online video unit. News that Shanda will sell 41 percent of Ku6 sent the unit’s shares soaring 43 percent, as investors bet the company would get privatized. The move adds weight to previous reports that Shanda founder Chen Tianqiao wants to sell off the various pieces of his online entertainment empire, with leading e-commerce firm Alibaba named as a potential buyer.
According to the latest reports, Shanda is selling the 41 percent of Ku6 to Xu Xudong, owner of iSpeak, an online platform that lets groups of people engage in collective activities. (English article; Chinese article) Xu will pay for his stake based on Ku6’s share price over the last 7 days before the deal was announced. The deal will make Xu Ku6’s largest shareholder, but Shanda will continue to hold a stake of nearly 30 percent as well.
Since the sale price is based on Ku6’s share price before the deal was announced, the big jump in the stock is most likely due to investors’ bet that Xu and Shanda will ultimately try to privatize the company. That wouldn’t come as a huge surprise, since Chen Tianqiao originally privatized Shanda Interactive 2 years ago, and is currently trying to privatize his company’s other remaining listed unit, Shanda Games (Nasdaq: GAME). (previous post) Shanda previously tried to make an IPO for its online literature unit, Cloudary, but ultimately abandoned the plan for various reasons.
Ku6 has been one of Shanda’s most problematic assets since it purchased a majority of the company in 2009 when it was known as Hurray Holdings. Since then the company has gone through several major management changes and moves into new products as it seeks to find a profitable area. The company posted revenues of just $3.4 million in its latest quarterly results, and a net loss that was slightly larger than that amount.
With that kind of performance, it comes as no surprise that any potential buyer of Shanda’s other major assets might not want Ku6. By comparison, Xu must feel he might be able to get some value from the company by combining its video platform with iSpeak. If initial results show good potential in that direction, I could see Xu and iSpeak buy out Shanda’s remaining stake in Ku6 and attempt to take the company private later this year.
From a broader perspective, the sale of Ku6 would remove an important obstacle to Chen’s attempts to sell off his company, whose other main assets include online games and literature units, as well as a cloud computing company and online app store. All of those assets seem more focused and to have more potential than Ku6, and previous media reports indicated that the acquisitive Alibaba was interested in buying some or all of those units. (previous post)
Alibaba denied at the time that it was in talks to buy all of Shanda, though it never specifically ruled out buying some of the company’s units. The previous reports had valued such a sale at more than $3 billion, which would easily make it Alibaba’s biggest purchase to date. From the broader perspective, this Ku6 sale, combined with the recent privatization bid for Shanda Games, does seem to hint that Chen is moving to reorganize or quite possibly sell his empire. I would put the chances of a sale quite high, at perhaps 75 percent, though the high price tag will be the biggest obstacle.
Bottom line: Shanda’s sale of a controlling stake in its Ku6 Media unit is the latest sign that founder Chen Tianqiao is moving to sell his company, which could happen later this year.
