Giant Interactive Group will be China's first United States-listed online gaming company to go private, due to its low valuation on the New York Stock Exchange in contrast to the sector's popularity in the domestic capital market.
Giant Investment Ltd will acquire Giant Interactive Group for $3 billion and take it private, the US-listed company said on Monday.
Giant Investment adjusted its offer to $12 a share, an 18.5 percent premium to Giant Interactive's closing price on Nov 22, 2013, just before Giant Investment's bid.
The transaction is expected to conclude in the second half of 2014.
Giant Interactive said the buyers' group, including Giant Interactive Chairman Shi Yuzhu and Baring Private Equity Asia, already owned 49.3 percent of the company.
The buyers' group will obtain a loan of $850 million from a consortium of banks including China Minsheng Banking Corp Ltd, BNP Paribas SA and Credit Suisse Group AG.
Insiders said Chinese private equity firm Hony Capital Ltd will participate in the deal, with an investment of $500 million. A Hony spokesman said that the firm had no comment.
Giant Interactive announced on Nov 25 last year that it had received a takeover bid from the buyers' group.
Che Jian, an investment manager at Shenzhen-based venture capital firm Oriental Fortune Capital, said that Giant Interactive couldn't raise much money in the US market, but it still had many obligations as a result of being listed there. With a strong cash flow, going private was a good choice, Che said.
"It can do many things after going private, including going public at home, and its valuation is expected to have a fivefold increase at least," said Che.
Online gaming companies listed in the A-share market are popular with investors. For example, Ourplam Co Ltd closed at 33.42 yuan ($5.40) on Monday, up 208.9 percent from its IPO issue price in 2012.
Bewinner Communications Co Ltd closed at 46.45 yuan, a 258 percent gain from its IPO price in 2007.
"The supply and demand relationship can explain Chinese online gaming companies' different treatment in the United States and China," said Meng Wei, an analyst at Orient Securities Co Ltd.
Meng said that in the US, there are many excellent listed technology, media and telecom companies, so Giant Interactive doesn't stand out.
But in China, it's different. Because of strict IPO review and approval processes, there are relatively few listed TMT companies of any kind, including online gaming companies, so investors will give them higher valuations, according to Meng.
US investors take a more "rational" view of listed online gaming companies, whose developers can't promise a steady stream of popular products, said Liu Chunhe, chief executive officer of Beijing -based New-born Town, a mobile Internet product developer and operator.
Liu said large online gaming companies such as Giant Interactive have strong potential in the emerging market of mobile games . If the company does list on the A-share market, its valuation should be high.
There are eight Chinese online gaming companies listed in the US. Among those, The9 Ltd began planning to go private in March last year, and Perfect World Co Ltd decided to pursue a privatization in December, according to China Business News.
At the same time as these companies are leaving the US equity markets, online gaming companies Beijing Chukong Technology Co Ltd, Beijing Locojoy Technology Co Ltd and Linekong Entertainment Technology Co Ltd are still planning IPOs in the US market, according to media reports.
"As it's faster and easier to list in the US, it is still attractive for Chinese high-growth companies," said Che.
