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Consortium Makes Shanda Games Buyout Offer

NEW YORK (TheDeal) -- Shanda Games (GAME) could be the latest Chinese company to be taken private if it agrees to an offer from a group that includes its controlling shareholder, in a deal valuing the online game developer's equity at $1.9 billion.

Shanghai-based Shanda Games revealed Monday that it has received a preliminary nonbinding buyout proposal from controlling stakeholder Shanda Interactive Entertainment and an affiliate of Primavera Capital, which already own a combined 76.2% of the company's outstanding shares.

The consortium offered to pay $6.90 per American Depositary Share for the 23.8%, or 65.5 million shares, of Shanda that it doesn't already own. That would value the buyout at approximately $452 million. The offer represents a 22.1% premium over Shanda's Friday closing price of $5.65.

The buyout proposal comes about two months after Shanda Game's larger rival, Giant Interactive Group (GA) received a preliminary take-private offer from its chairman, Yuzhu Shi, and Baring Private Equity Asia on Nov. 25. Shi and Baring already own 47.2% of GIG's outstanding shares. Their offer values the Shanghai-based company at more than $2.8 billion.

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Other recent Chinese take-privates include Beijing-based telecom software company, AsiaInfo Linkage, which on Jan. 15 was bought out by Power Joy, a portfolio company of Citic Capital China Partners II, in a deal valued at $890 million. Tech outsourcer Pactera Technology International, also of Beijing, on Oct. 17 agreed to be taken private by a Blackstone Group-led consortium for $625 million.

In Shanda Games' case, the proposal by the consortium of Shanda Interactive and the Primavera Capital affiliate is a "preliminary indication of its interest" to finance the transaction using equity capital and third-party debt.

Shanghai-based Shanda Interactive Entertainment is an interactive entertainment media company that, besides Shanda Games, operates through subsidiaries that include Cloudary and online video company Ku6 Media.

Primavera Capital, founded in 2010 and with offices in Beijing and Hong Kong, is an investment firm that concentrates on buy-out, control-oriented and growth capital investments.

Shanda Games said its board intends to create a special committee that includes independent directors to evaluate the proposal as well as other strategic options.

Investors liked the news. Shanda Games' shares, trading on the Nasdaq, rallied about 13.1%, to $6.40, midday Monday. Even before the offer, shares have advanced about 82.8% over the past 12 months, hitting $5.65 on Jan. 24.

Shanda Games on July 28 acquired two prepaid card distribution businesses, Shengzhan and Shengjing, from Shanda Interactive for $811.5 million. It was a much larger deal than the one Shanda Games made on Sept. 8, 2010, when it paid $95 million in cash for online game development studio Eyedentity Games.

The company most recently posted third-quarter revenue and EBITDA of $182.9 million and $87.03 million, respectively, for the period ended Sept. 30.

It had a cash balance of $280.8 million as of Sept. 30, while long-term liabilities were just $4.9 million

Shanda Interactive has tapped Wilson Sonsini Goodrich & Rosati for legal advice on the proposal, and retained Davis Polk & Wardwell for U.S. counsel.

Primavera has engaged Latham & Watkins as its U.S. legal counsel.

Shanda Games didn't return calls or e-mails on Monday. Members of the consortium that wants to buy it couldn't be reached.

-- Written by Sarah Pringle

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