Shanda’s Chen Eyes New Start With Company Sale Plan
I’ve followed online entertainment entrepreneur Chen Tianqiao for quite some time now, and can completely understand the latest news that he may be ready to throw in the towel by selling his flagship company, Shanda Interactive Entertainment. I remember first running into Chen in Hong Kong back in 2004 at an investor event, shortly before Shanda become China’s first publicly listed online gaming company later that year. Shanda was briefly on top of the world as China’s top Internet gaming firm for a few years after that; but it has run into a non-stop series of headaches since then, causing its value to stagnate as it got passed by more nimble rivals like Tencent (HKEx: 700) and NetEase (Nasdaq: NTES).
Before I go any further on this trip down memory lane, let’s look at the latest headlines that originally said Chen was in talks to sell his empire for $3.2 billion to $3.5 billion to leading e-commerce firm Alibaba. (Chinese article). If such a deal was really happening, it would easily be the largest purchase to date by the recently acquisitive Alibaba, whose largest acquisitions over the last year have included stakes in leading microblogging service Sina (Nasdaq: SINA) Weibo and online mapping company AutoNavi (Nasdaq: AMAP).
Shanda had no comment on the original reports, though Alibaba came out and denied such a deal was happening. That prompted a second round of reports, this time saying that Shanda was actually in talks to sell its 5 largest businesses to Alibaba, including its listed Shanda Games (Nasdaq: GAME) and Ku6 Media (Nasdaq: KUTV) units, as well as its cloud computing, online literature and app store divisions. (Chinese article) Shanda Interactive itself was a publicly listed company until February 2012, when it formally privatized in a deal that valued the firm at more than $2 billion.
Regular readers will know that most of Shanda’s largest units have been plagued with problems for much of the last few years. Shanda Games, owner of the company’s original online gaming business, has seen its growth stagnate in the last 2 years, with the result that its share price has moved steadily downward since it was separately listed in 2009. The shares now trade at about half their IPO level and were previously even lower, prompting Chen to make a privatization bid for the company in January. (previous post)
The other listed unit, Ku6 Media, has been an equal laggard as it struggled to find a business area where it could compete in the online media space. Its shares also stagnated for years, though they jumped 5.5 percent in the latest trading session on the company sale reports. Then there’s the online literature unit, Shanda Cloudary, which had to abort 2 IPO attempts, the second time a year ago after many of the unit’s middle managers suddenly left to set up a rival firm backed by Tencent.
Chen himself is also known for his combative management style, reportedly leading to frequent clashes with top managers of his various units. That problem led him to hire an investment banker to head his parent company in late 2012, but clearly that move hasn’t helped to turn things around.
With all those headaches weighing on his mind, it certainly wouldn’t come as any surprise that Chen might be considering selling part or all of the company he worked so hard to build over the last decade. Accordingly, I suspect there’s some truth to the latest reports that he may be looking to sell some or all of his company as he prepares to try something else. His entire company may be too expensive for Alibaba, which may just end up buying 2 or 3 Shanda units for $1-2 billion instead of the whole company.
Bottom line: Shanda is likely to sell 1 or 2 of its biggest units to Alibaba for $1-2 billion, as Shanda founder Chen Tianqiao looks to dismantle his company and try something new.
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