Shanda Network buys two affiliated companies

Recently, the Grand Game (GAME,NASDAQ) announced the purchase of 811.5 million U.S. dollars from the parent company Shanda Network audience to provide its user payment platform services two subsidiaries. As the deal is not favored by investors, the day Shanda game shares plunged 20%.

Some investment bankers on the daily economic news reporter said, from Chen flyover to take the cash of listed companies, do not rule out the possibility of its privatization grand game.

Left-right maneuver questioned

July 29, the Grand network announced, in order to deepen the implementation of the Group mobile strategy, and fully promote the grand game mobility and platform, has decided to provide online data and user services and prepaid card payment of two platform-type companies into the Grand game.

The announcement also said that after the asset injection, as a result of the increase in profits and the elimination of related transaction costs, Shanda game earnings per share (EPS) will significantly increase 40%~50%.

Shanda has paid a total of 811.5 million dollars for this transaction, including cash, deferred payment and settlement of the Grand Interactive entertainment loan.

The daily economic news reporter noted that the acquisition of the day Shanda Games total market value of about 1.35 billion U.S. dollars, the purchase price equivalent to the grand game of nearly 60% of the total market value.

On the news, Shanda gaming stocks plunged nearly 20% and fell 6.61% again the next day.

Clearly, investors are not bullish on the acquisition. Li Kaifu, chairman and chief executive of Innovation, said in his microblog that "the listed subsidiaries spend 800 million of dollars on the" Customer service + Point card "platform of the private parent company. Do you think a U.S.-listed subsidiary is a cash machine? ”

As of March 31, 2013, the total amount of cash, cash equivalents, short-term investments, restricted-use cash, net loans and payable dividends held by Shanda Games amounted to USD 556 million.

Public information shows that the Grand network holds a 76% stake in Shanda Games.

Chen Flyover on October 17, 2011 to the Royal Network submitted a proposal letter, as of September 30, 2011, Chen, Luo Qianqian (Grand board members, Chen wife) and Danian (now a grand COO and board members) hold a grand network 68.4% of the shares.

And in last year's grand network privatization completed, Shanda Network became a wholly owned subsidiary of Premiumleadcompanylimited. Premiumleadcompanylimited is a commercial company registered in the British Virgin Islands, and its United owners are Chen, Luo qianqian and Danian.

Therefore, there is analysis that the acquisition and business integration is not a special relationship, but Chen flyover hand-crafted funds to maneuver, that is, from the grand game directly to cash the behavior.

Themotleyfool, the US investment website, also writes that Shanda's revenue has failed to grow in the past three years and is now being bought in excess of half its own valuation, a takeover that may not help Shanda grow in the long run.

In this respect, Shanda Games related people in the "Daily economic news" Reporter interview, the above statement can not, "we have to strengthen communication with the capital market, but also believe that the enterprise integration platform after the long-term value." ”

According to the introduction of the Grand game, two affiliated companies, one of the exhibition for the online service platform, mainly for Shanda games to provide online billing, user authentication, customer service and data support services; while another affiliated company, Shengjing, is a distributor for Shanda games to distribute and promote game prepaid cards.

In the past few years, Shanda has paid service fees to the two companies, including network payments, user authentication, customer service, data support services, prepaid card marketing and channel services. In the first quarter of this year, Shanda Games paid chin and shengjing service fees equivalent to about 21.3% of the company's total net revenue.

Chin and shengjing, closely associated with the Shanda game, were kept in the parent company's Royal Network in 2009. Today, the two companies are sold at high prices to Shanda games.

In this respect, Chen Tianqiao's argument is, "for mobile games, the platform plays a more important role." This transaction will provide synergy to build the mobile platform and accelerate the growth of the company's business. ”

Analysys International analyst Shillon told reporters that since two companies are Chen Absolute Holdings, it is pointless to discuss their valuations. "The strangest thing is that the General Assembly will completely separate the development and operation of the game and the payment system, which may not be possible in other companies." ”

He believed that the Grand group move is to lay the groundwork for the future business, because the hand travel industry to the channel dependence is serious, Chen Tianqiao tries to turn the grand online to become a platform, opens up the game to the downstream link.

Grand Games or privatisation

In fact, as early as 2010, the Grand game revealed the strategic layout of the transition hand tour. But there was no good hand-travel products available until the first quarter of 2013 through the "Million King Arthur" before the results.

Shanda Game Quarterly shows that the net operating income of the quarter is 1.085 billion yuan, mobile gaming revenue from 8.2 million yuan to 107 million yuan RMB. "Millions of Arthurian" single game for the company contributed nearly 10% of the revenue, one-quarter revenue more than 100 million yuan.

But it is still hard to judge whether it will contribute to the performance of the two subsidiaries that are packaged into Shanda games.

An investment banker, who declined to be named, said investors should focus on the next step of the project, which took a lot of cash out of Shanda's games. Future Shanda games have great probability of being privatized.

This is quite similar to the usual idea of capital operation by Chen Tianqiao.

2012, after the privatization of the Grand network, Chen Tianqiao is a substantial streamlining of business, focusing on games, literature, video three main content, and established the payment, cloud computing, advertising system three technical support line.

Specific to the business level, Hao Fang and winger priced 3.2 billion yuan sold to Zhejiang newspaper Media. Last September, the Grand Innovation Institute, which had been placed in high hopes for innovation research, was restructured, and a large number of projects and personnel had been shut down and cleared. In Chen and Danian after the separation, carrying the Chen Tianqiao "platform Dream" of the hardware business plate by Danian Holdings, from the Grand Group of the Territory.

Stripping the low profit margin and the uncertain profit prospect has become the focus of the Grand group business combing.

Last August, there were rumours that Shanda could pack up the game business for sale to 360. Although the two sides in the first time to refute the rumor, but a close to the grand people informed reporters that two companies did contact, but in the end there is no substantive results.

Shillon analysis, Shanda game is unlikely to sell, this business is the core of Chen Tianqiao dream, if the sale means he "do not want to play." In addition, the volume of Shanda games and the difficulty of integration, it is also difficult to find a company to take. "Privatization can be very big, the overall valuation of Shanda games is not high, and the repurchase of shares does not require too much cost." ”

The CFO of another listed company also told reporters that after privatization, controlling shareholders increased their grip on the company, restricted by investment institutions and regulators, and no longer had mandatory disclosure requirements on the market. "It was the real money that came out of the market, and after the rapid cycling and the scale, the P/E and share prices fell," he said. The cost of privatization may be more cost-effective than borrowing from banks. ”