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Tue, Feb 22, 2005 - Page 12 News List

Shanda's new Sina stake alters market

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Shanda Interactive Entertainment Ltd's (上海盛大互動娛樂) acquisition of 19.5 percent of Sina Corp (新浪), China's No.1 Internet portal, may spur consolidation in the industry, analysts in China and Hong Kong said.

Shanda, an online games developer run by Shanghai billionaire Chen Tianqiao (陳天橋), disclosed on Feb. 18 that it acquired control of Sina Corp after securing a one-fifth stake in the Chinese Internet search engine by buying shares on the open market. Both companies are listed on the US' NASDAQ market.

Sina executives said in a statement on Feb. 19 that they "will review" the transaction.

The acquisition, valued at US$425 million, will help Shanda diversify beyond online games and allow Sina to strengthen its range of titles, according to analysts. The partnership may also put smaller companies at risk, analysts such as Eagle Zhang say.

"This may lead to more consolidation in China's Internet industry," Zhang, an analyst with Beijing-based technology market research firm Analysys International, said today. "There are now more than 20 listed Chinese Internet companies. The weak players will be weeded out."

In the Feb. 18 filing to the US Securities and Exchange Commission, Shanda said it and affiliate Skyline Media Ltd bought about 9.8 million shares in Sina through open market purchases. Shanda bought 8.2 million Sina shares between Jan. 6 and Feb. 10, the filing shows.

Sina's rival portal operators such as Netease.com Inc and Tom Group, Ebay Inc and Yahoo Inc surely will respond by either accelerating acquisitions or forming alliances to increase competitiveness.

"If your competitors are growing bigger, what are you going to do?" said Wallace Cheung, a Hong Kong-based securities analyst with DBS Vickers. "There's still room for Shanda to acquire more Sina shares, but watch out for counter-bidders like Yahoo."

Sina shares have fallen 20 percent this year, compared with a 5 percent drop in the NASDAQ Composite Index. Sina said on Feb. 8 its first-quarter sales might miss analysts' estimates because of changes in billing methods. Shanda shares have fallen 29 percent this year.

By combining strengths, both companies can help each other gain additional market share, some analysts said. Shanda can sell more online games through Sina's distribution channels to China's 94 million Internet users and Sina can focus on strengthening its weaker areas, such as e-commerce, Cheung of DBS Vickers said.

Sina has a market value of US$1.3 billion, compared with Shanda's US$2.1 billion.

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