Yuanxi Zhang
Long/short equity, value, special situations

Giant Interactive: The Deal Is Moderately Attractive With 8.9% Annualized Return

Thesis

We expect the go-private deal of Giant Interactive (NYSE:GA) to close in 5 months. Although not disclosed in the merger agreement, the deal will require PRC Ministry of Commerce's approval, which could be a drag in the process. While the risk that the deal falls apart is low, we believe the current gross spread of 3.6% is moderately attractive given the time frame. Hence, we recommend entering a position at lower prices.

The Merger

On March 17, 2014, Giant Interactive (Giant) announced that a consortium consisting of Giant Investment Limited (backed by Shi Yuzhu), Hony Capital (part of Legend Group), and Baring Private Equity Asia will acquire the 50.7% outstanding shares it does not own at $12.00...

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