Shanda buys large stake in Sina portal
By Liu Yan (China Daily)
Updated: 2005-02-21 14:21

Grabbing control of the Number One Internet portal Sina Corp has become a top priority for the largest Chinese online games operator Shanda Interactive Entertainment Ltd.

The Shanghai-based company announced on Saturday that it had acquired a stake of almost 20 per cent.

Shanda and its controlling shareholder Skyline Media Ltd bought about 9.82 million outstanding ordinary shares of NASDAQ-listed Sina by February 10 through open market purchases.

This means Shanda controls 19.5 per cent of Sina's outstanding shares, making it the biggest single shareholder in the Beijing-based Internet portal.

The transaction cost Shanda and Skyline Media Ltd more than US$230 million, according to Shanda's filing to the US Securities and Exchange Commission on Friday, US Eastern Time.

Following the announcement Shanda's stocks on the NASDAQ fell by 1.1 per cent to US$29.68 in after-hours trading on Friday, while Sina's rose by 10.55 per cent to US$28.30.

The largest Chinese games operator said in the filing that the move was a strategic investment and that it may conduct discussions with Sina on a business combination transaction.

The company declined to make any further comment on its future plans regarding the transaction.

Shanda has set itself the goal of becoming a digital media empire like Disney, while Sina is the dominant online advertising firm and one of the largest wireless value-added service operators in China, and also plans to develop into a digital entertainment gateway in the future.

However, it will be tough for Shanda to gain full control of the biggest Chinese Internet portal.

Sina said in a statement on Saturday night that Shanda's investment will not have any impact on its operations and its shareholders do not need to take any action.

Wang Yan, CEO and president of Sina, also said in a letter to Sina's employees that Shanda has not gained any legal control over Sina, and its investment will not have any impact on Sina's board, management, employees, customers, or operations.

Lu Weigang, an Internet industry analyst in Beijing, believes Shanda will not seek to further boost its stake in Sina immediately, as it is more important to communicate with Sina's board first to get their understanding.

Since Sina's stake-holding structure is fragmented and the previous largest shareholder only had about 10 per cent ownership, it will take a great effort for Shanda to convince them of the benefits of a business partnership.

Lu predicts Shanda will not want to make drastic changes to Sina's business practices or management, since it does not have enough experience in operating Internet portals and it would be more interested in integrating resources to build its entertainment empire.

Fang Xingdong, an Internet industry veteran, was quite optimistic about the co-operation.

Analysts believe Shanda made the move at the right time, when the valuation of Sina's stock was low and its shareholders and management are under huge pressure, as Sina suffered from regulatory campaigns on wireless messaging services by the Chinese Government and mobile operators.

Sina warned on February 8 that revenue from its wireless services might fall by 20 to 30 per cent in this quarter, compared to the previous one.

Wireless business contributed almost two thirds of Sina's total in the fourth quarter. The company's stocks fell by almost a quarter on that day.

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