Giant Interactive (GA) is off 0.4% to $11.36 in premarket action after agreeing to be taken private for $12 per share, $0.25 more than the original bid in November. The deal is expected to close in H2.
Shanda Games (GAME +10.8%) has received a non-binding going-private proposal letter from parent Shanda Interactive and an affiliate of Chinese investment firm Primavera Capital. The offer, meant to be financed through a combo of equity and debt, values Shanda Games at $1.9B, or $6.90/share. (PR)
Shanda's board is evaluating the offer; the would-be acquirers already own 76.2% of the company.
Though up sharply, shares still trade 9% below the offer price, which suggests a fair amount of investor skepticism exists. Peer Giant Interactive (GA +1.1%) received a going private offer in November. Giant's shares still trade 7% below their offer price.
SA contributor Ottoman Bay Research accuses Giant Interactive (GA -3.8%) chairman Shi Yuzhu of siphoning "tens of millions of dollars of shareholder cash out of the company and into his own private equity firm," courtesy of investments made by Giant that have seen heavy losses.
Ottoman also points out "independent director" Jason Jiang, who happens to be on the special committee evaluating Shi's $11.75/share going-private offer, is a founding partner of Shi's P-E firm, and thinks Jiang will likely have to resign.
The firm is skeptical of Shi's willingness to make good on his buyout offer, and notes he has sold 11% of his stake in recent months at levels well below the offer price. It also observes buyout partner Barings Private Equity is "no stranger to walking away from bad businesses even after proposals were made," and thinks Giant's 61% op. margin warrants scrutiny, given it's far higher than that of peers such as NetEase, Shanda, and Perfect World.
Giant Interactive's (GA -1.1%) special committee of the board retains Morgan Stanley Asia and Duff & Phelps as its financial advisors to consider the non-binding proposal from Chairman Yuzhu Shi and Baring Private Equity Asia to take Giant private at $11.75/share.
Giant Interactive (GA +11.5%) founder/chairman Yuzhu Shi and P-E firm Baring Private Equity Asia have offered, through a preliminary non-binding proposal letter, to take the Chinese online game developer private for $11.75/share, or $2.8B. (PR)
The price represents a 16% premium to Giant's Friday close, and a 4% premium to where shares currently trade. Shi and Baring collectively own 47.2% of Giant.
Shi is far from the first founder of a Chinese tech company to make a going-private offer. His proposal values Giant at a little over 9x 2014E EPS after backing out $610M in cash/investments.
SolarCity (SCTY) expects Q4 revenue of $40M-$46M ($22M-$24M in operating lease revenue, $18M-$22M in systems sale revenue) and EPS of -$0.55 to -$0.65 vs. a consensus of -$0.47. 101MW are expected to be deployed, a figure that meshes with existing full-year guidance of 278MW. 2014 guidance for 475MW-525MW in deployments has been reiterated. Shares -2.7% AH, giving back a small portion of the year's big gains. (Q3 results, PR)
Giant Interactive (GA) expects Q4 revenue to "grow moderately" relative to a Q3 level of $96.4M. That suggests the company could miss a Q4 revenue consensus of $101.8M. Shares unchanged AH for now. (Q3 results, PR)
Following a Q3 miss, Rosetta Stone (RST) expects 2013 revenue of $270M-$280M and EPS of -$0.12 to -$0.01, below a consensus of $286.5M and $0.01. The language software vendor blames "lower pricing and softness" in retail channels for its near-term issues. Shares -11.2% AH. (Q3 results, PR)
China's State Council says gaming consoles, banned since 2000, will be allowed for sale provided they're approved by the Ministry of Culture. The decision opens the door for Microsoft (MSFT +1.1%), Sony (SNE -0.7%), and Nintendo (NTDOY.PK) to begin officially selling their hardware in the Middle Kingdom.
Unofficially, the hardware hasn't been hard to find on the black market, with sellers typically hawking modified systems that support pirated games. However, the government's decision should open the door for console makers and game developers (EA, ATVI, TTWO) to formally market their wares, replete with Chinese-language translations.
Aside from piracy, China's well-established online gaming scene will serve as a challenge for console makers and game developers. Some of the online gaming firms they'll be competing against: TCEHY.PK, NTES, GA, GAME, PWRD, CYOU.
Today's downturn in Chinese game makers is outpacing a broader tick down in the Chinese tech space (CQQQ -0.2%). Perfect World (PWRD -1.5%), NetEase (NTES -4.7%), and Giant Interactive (GA -2.4%) are falling in sympathy after Shanda Games (GAME) was walloped yesterday following a Q2 beat.
NetEase is the lame duck, as a downgrade from JPMorgan to Neutral (albeit with a PT hike to $75 from $65) weighs the stock.
Shares of Perfect World (PWRD -6.6%) continue the descent they began during AH yesterday. Although the Chinese web/mobile game maker beat Q2 consensus and issued strong Q3 guidance, investors appear to have been left wanting.
A chief concern is ballooning costs. Cost of revenue grew 37% Y/Y in Q2 while opex grew 18.6% Y/Y. Revenue was up 4.7% in the same period. Marketing expenses were the largest culprit, up 60.1% Y/Y. Pacific Crest noted, "Q3 guidance is strong but spending is expected to remain elevated."
Morgan Stanley chopped its rating earlier today to Equal Weight from Overweight following Perfect World's Q2 release: "This mainly reflects rich valuation. Perfect World is trading at 10.7x 2014e P/E, vs. 4.6-10.8x for peers." However, the bank raised its PT to $20, reflecting its expectation of strong revenue growth in 2H on the back of "strong reception of new games such as Saint Seiya Online and Swordsman Online."
Perfect World is up 81.1% YTD, its climb nearly two-fold that of peers.
Other Chinese game makers: Shanda Games (GAME), NetEase (NTES), Giant Interactive (GA)