Bubble News of the Day

Shanda Plans IPO For Games Unit

Spinning of the games business of Shanda Interactive seems like a weird idea: there’s not much else to Shanda other than games; the business accounts for more than 95% of the parent company’s revenue.

Shanda makes an offer for Hurray!

Shanda to Take Over Hurray

Shanda Interactive Entertainment Inc. announced plans to launch a tender offer for 51% of fellow Chinese online-entertainment concern Hurray Holding Co. with the support of Hurray's board.

Shanda is offering $4 per American depositary share, a 25% premium to Friday's closing price. The shares bottomed out at 93 cents three months ago, but have surged since late April amid potential takeover efforts.

华友世纪将大幅裁员：或为出售铺路—Layoffs at Hurray! pave the way for sale

华友世纪将大幅裁员：或为出售铺路

有消息人士称，华友昨日下午已内部通知了裁员计划，补偿方案根据劳动法规定的补偿标准。据悉，此次裁员波及范围相当广，可能有大量员工在此次调整中被裁掉。

　　昨日晚间，有华友相关负责人证实了该公司将裁员的消息，不过该人士未披露此次裁员计划的细节。

截稿前，华友未就裁员计划发布公告，其裁员原因等仍有待披露。

Short translation:

A source at Hurray! told CNstock.com that big layoffs are coming at Hurray! The article goes on to say insiders believe it could mean a sale is coming.

Often times the layoffs are done after a sale, since new management decides who to hire and fire. This may indicate the company has burned through a lot of cash and needs to reduce operations, or it could mean that a sale is in the works, since Shanda would be most interested in Hurray!'s assets.

Along those lines, JLM Pacific Epoch has insider news about the deal:

An unnamed insider said that Shanda (Nasdaq:SNDA) has offered $3.25 per American depositary share (ADS) for about 80% stake in music production, artist development and wireless value-added services provider Hurray Holding Co, reports Sina.

More info at link.

Hurray! held up well in Wednesday trading, considering yesterday's run-up and the overall mood in the market. HRAY lost 6.6 percent.

Shanda in the News—盛大新闻

Shanda (SNDA) has some news today.
Shanda May Buy Service Provider Hurray!
Hurray! is up 27 percent on the news. Caijing reports a previous offer from another bidder was $3.50 per share, another 25 percent above the current price.

Investors like Shanda here as well, shares are up about 2.5 percent. Why might Shanda be interested?

The company [Hurray!] also provides a range of other WVAS to mobile users, including games, pictures and animation, community, and other media and entertainment services.

Shanda was rumored to be interested in the company in 2005.
盛大有望收购华友世纪

　盛大与华友世纪的渊源由来已久。2005年5月，当时如日中天的盛大刚刚开始自己的一系列收购，除了入股新浪，还收购了网络游戏平台浩方、手机游戏公司数位红等多家公司，华友世纪一度也是选择之一。但一位原盛大高管介绍，盛大董事长兼CEO陈天桥对于SP业务不看好，使他最终放弃了这一收购机会。
　　过去两年时间中，华友世纪原CEO王秦岱大举收购唱片公司，使公司由SP向娱乐音乐领域转型，但是并未取得期望中的成功。

Here's the reason why the company is attractive:

虽然过去已经有过多笔收购，但是目前华友世纪账上仍有超过5900万美元现金及等价物，华友世纪在音乐方面的收购布局也具有一定的商业价值，这也成为多家互联网公司看好华友世纪并希望控股的原因。

HRAY has about $59 million in cash. Market cap as of right now, up 25 percent to $2.75 per share, is $60 million. At $3.50, an acquirer would pay about $16 million net for a company with $54 million in declining revenue last year. However, the $60 million figure is from December 31, 2008, and the company lost $9 million in that quarter. The total figure at this time may be around $50 million, assuming business deteriorated at the same rate as Q4, which would raise the cost to around $25 million.

More from JLM Pacific Epoch:

Shanda may inject some of its online literature assets including Qidian.com, into Hurray for backdoor listing, reports Sohu quoting an unnamed insider.

Best Prospect Overseas Limited withdrew an offer of $4.00 per American depositary share to acquire a 51% stake in Hurray on May 8, saying that some Hurray board directors had refused to negotiate. A Sina source said that Hurray cut contact with Best Prospect after granting Shanda a one-month exclusivity period for negotiation.

Shanda looks as though they're playing the role of white knight. It'll be interesting to see if, and how much, they bid.

Best Prospect Overseas Limited isn't going away, they've written a letter to shareholders.

Hercules Offshore Pops, Shanda Plops

I mentioned Hercules Offshore back on March 19. On that day, the stock was up 20 percent and I was sitting on a gain of 40 percent total in my Marketocracy Best of Funds. HERO is up another 20 percent today and the position in the Best of Funds has a 75 percent gain. It was a small position initially and has grown to about a half-position size. The previous gain came just after the Federal Reserve announced its quantitative easing policy, but today's move is probably a combination of optimism and $50 oil—a quick check of the energy ETFs shows most of them up more than 2 percent versus 0.5 percent for the S&P 500 Index.

Investopedia has a blurb on oil services today, including Hercules Offshore:

With the focus on deep water drilling, the shallow Gulf of Mexico seems to have been forgotten. The mature fields are often seen as secondary to faster growing deposits in deeper colder water. Combine that with increasing hurricane risk, low oil prices and a debt load of just north of $1 billion and you can see how Hercules Offshore (Nasdaq:HERO) has been struggling as of late. The company has the distinction of being the largest operator of jackup drilling equipment in the Gulf, and the main liftboat operator worldwide. In order to repay debt, Hercules began cold-stacking some of its rigs, including six jackups, three submersibles and 10 barges. The driller has also reduced head count by 25% since November and is planning on selling some older, obsolete driller rigs in order to raise cash. If these cost cutting measures work, Hercules may once again hit its highs

Long-term the stock could go a lot higher——it was as high as $39 in the past year, compared to $3 today. In the short-term, however, a significant pullback would not be surprising. A drop of 50 percent from these levels would still leave HERO 50 percent above its 52-week low.

Shanda (SNDA) fell 11 percent today, down to $47.76. It moved more than 10 percent three times this week, and 7 and 8 percent the other two days. The9 (NCTY) jumped almost 20 percent today after suffering huge losses the previous two days, and it's still 19 percent below Tuesday's close.

More Chinese Gaming News

It's been a volatile week for these stocks, and big news came yesterday when The9 lost its bid to renew the license to operate World of Warcraft. Netease won the right to operate the game for the next three years after the current contract expires. Here's a comparison of the two, plus Shanda, over the past three months.

Final Shanda Update

I'm not one for multiple updates on stocks, but initially the move in Shanda (SNDA) was surprising. Now that it's explained by the release of a new game and some interest in Chinese shares, the direction is in the hands of traders and investors. Volatility continues today, with shares reversing yesterday's big gains.

Shanda Jumps Again

Shanda (SNDA) rose more than $5 or 12% today, as the run in gaming stocks continues. Tickerspy attributed the move to the success of the new game Aion, after 500,000 Chinese gamers signed up for beta testing on the first day.

Hard to tell how far this can run, but I believe that video games have replaced movies as the escape entertainment. During the Depression, movie attendance rose, and we're seeing a similar rise today. That's strong evidence in favor of a rise in video game sales as well, especially since it offers a more immersive form of escapism.

Shanda Hits All-Time Intraday High

Shanda Interactive (SNDA), a stock I've owned since 2004, just hit a new all-time intraday high at close to $46 per share. The last time it traded that high was late December 2004 and early January 2005. The stock has gone on a tear this year, up about 35%—similar to the mainland market, though they have not traded in tandem.

There's a lot of interest in Chinese internet gaming stocks, with Sohu.com's (SOHU) spin-off of Changyou (CYOU).

At least as of 1 PM, Shanda's 7% intraday move was not replicated by its competitors. The9 (NCTY) was down 6.62% as of this writing.

Update: Shanda closed at an all-time high. It finished the day up 5.7% to $45.07, on double the 3-month average volume.

Chinese Stocks: The American Option

If you want to invest directly in China without purchasing shares in Mainland companies, there are many stocks available on the American exchanges. These companies must comply with American listing standards, although as Jonathan Weil points out, that isn't necessarily saying much.

The are several major differences between the available stocks. First, some are ADRs of Chinese state-owned companies. China Mobile (CHL) falls in this category. Some of these companies have very odd share structures, such as China Yuchai (CYD). Shareholder Peter Delgado, II, is an activist shareholder in CYD, and he's written several articles on the company. Anyone who's serious about investing in state-owned companies should read his articles, which can be found on Seeking Alpha.

Next are Chinese companies that have listed directly on a U.S. exchange. Since it is difficult to list on the mainland exchanges, many companies chose to list overseas—especially Chinese internet companies. Here's a small part of Shanda's investor relations FAQ:

20. Where and when was Shanda incorporated?
Shanda was incorporated in the Cayman Islands in November 2003, however, our business was founded in December 1999 under the Shanghai Shanda Networking Co., Ltd.

21. Where is Shanda's stock listed?
Shanda's stock is listed on the NASDAQ National Market under the ticker symbol SNDA.

22. When did Shanda go public, and at what price?
Shanda issued 13,854,487 ADSs (American Depository Shares) on May 13, 2004 at U.S. $11 per ADS in its initial public offering (IPO). On June 2, 2004, Shanda held the closing for the over-allotment option in connection with its IPO. At this closing an additional 1,505,634 ADSs were purchased from Shanda and the selling shareholders, which increased the total outstanding Shanda ADSs to 15,360,121 and the total outstanding Shanda ordinary shares to 141,818,280.

Finally, there are American companies who do the vast majority of their business in China. A good example of this is Chindex (CHDX).

You can find American listed Chinese companies with market caps over $50 million at the website for the Halter USX China Index.