Sina Joins M&A Trail, NetEase Oinks Out
Two of China’s oldest listed Internet firms are in the headlines these last few days, led by word that leading portal Sina (Nasdaq: SINA) has become the late web giant to make a mega bond offering as it eyes potential acquisitions. In the other more amusing news, NetEase (Nasdaq: NTES) is reportedly struggling to build up its pig-raising business that it hyped a couple of years ago, spotlighting its inability to expand beyond its core online game business.
Let’s start off with Sina, which has announced it plans to raise a hefty $700 million through an offering of convertible notes. (company announcement) The figure is up from a previously announced plan for $600 million, and the final number could rise to $800 million if one of the underwriters exercises an over-allotment option. The notes carry a 5 year term, and a conversion price of $123.70 per share, representing a 45 percent premium over Sina’s share price just before it announced pricing of the deal. Sina said it will use $100 million of the funds to repurchase its shares, with the remainder going for general corporate purchases and potential acquisitions.
Sina’s mega bond is just the latest in a growing series by China’s top Internet companies over the last year, as investors place bets on a strong future for these sector leaders. Other players to raise big funds from similar offerings include leading Internet firm Tencent (HKEx: 700), top search engine Baidu (Nasdaq: BIDU) as well as security software specialist Qihoo 360 (NYSE: QIHU).
Combined with its $1.2 billion in cash disclosed in its latest quarterly report, Sina now has the equivalent of $2 billion in funds for acquisitions. That raises the next question, namely what kinds of purchases we might see Sina chase. The most logical choices would be companies in the SNS space that can complement its Weibo microblogging service, with names like Kaixin and Renren both looking like potential candidates. It could also chase one of the nation’s many smaller online game companies. I suspect Sina is already talking to some of these companies, and that we could see 1 or 2 major deals in 2014.
Moving on to NetEase, media are reporting the company’s pig farming plans discussed with fanfare in 2011 haven’t developed as quickly as hoped for. The pig raising plan had been a pet project of NetEase’s softspoken founder Ding Lei, and was even being touted as a potential candidate for a future public listing. (previous post)
Media are reporting that Ding’s plans haven’t developed quite as quickly as he hoped, with only 100-200 pigs present during a reporter’s recent visit to the main facility in Zhejiang province. (Chinese article) That’s far less than the 10,000 pig figure that was being trumpeted back in 2011. I don’t know much about the pig business, but the apparently slow progress does seem a bit disappointing. Ding has been working on the business now for 4 years, so for it to still be in this kind of experimental phase shows that progress has been slow and perhaps the farm will never become a major commercial player.
More broadly speaking, this lack of progress looks like a growing theme from NetEase, which seems unable to expand beyond its core gaming business. The company began its life as a web portal, and still operates a well regarded portal and email business. But recent attempts to revive those units have yielded little or no progress. NetEase also recently launched a new mobile messaging service with China Telecom (HKEx: 728; NYSE: CHA), though it’s too early to say if that venture will succeed. But this latest lack of progress in pig farming does seem to underscore that NetEase may be stuck in the online gaming space for quite a while to come.
Bottom line: Sina is likely to make an acquisition in the SNS or online games space in the next 12 months, while NetEase is likely to remain reliant on online games for a while to come.
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