Shanda Rallies on $1.9 Billion Takeover Offer: China Overnight

Shanda Games Ltd. rallied to a two-year high, skirting a slump in Chinese stocks traded in New York, after the operator of online games received a $1.9 billion offer to be taken private.

American depositary receipts of Shanda surged 15 percent to $6.50 yesterday, as Shanda Interactive Entertainment Ltd. and an affiliate of Primavera Capital Ltd. proposed to buy the company for $6.90 per ADR. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. slid to a five-month low. TAL Education Group sank 9.6 percent after announcing an investment in Babytree Inc., while LightInTheBox Holding Co. slumped after the company said that its chief financial officer will step down on Feb. 17.

Forty-six Chinese companies have announced buyout deals to withdraw from U.S. listing since 2011 as concerns over corporate governance and the quality of their accounting depressed their valuations, according to data compiled by Bloomberg. The trend may be slowing as share prices increased over the last two years, according to Oberweis Asset Management.

“We will see less of it, given the run over the last year or so, but there certainly remains a group that could be taken out,” Jeff Papp, a Lisle, Illinois-based senior analyst at Oberweis, which oversees $1 billion in assets, said in an e-mailed reply to questions.

Shanda’s offer, which is non-binding, represents a 22 percent premium to the closing price Jan. 24. The board is reviewing the proposal and will form a special committee of independent directors to evaluate the bid as well as consider “other strategic options,” Shanghai-based Shanda Games said in a statement yesterday.

‘Million Arthur’

Shanda Games, which licenses titles such as Sega Networks’ “Chain Chronicle,” has been expanding into mobile games with titles such as “Million Arthur.” In July, Shanda Games agreed to buy two units of its parent company for $811.5 million to improve its cost structure.

ADRs of Beijing-based TAL sank to $21.26, the biggest slump since August 2012. Trading volume was more than triple the 90-day average compiled by Bloomberg. TAL will invest about $23.5 million in Babytree, the operator of an online resource for prospective and new parents, according to their joint statement yesterday.

LightInTheBox, a Beijing-based online retailer of lifestyle goods, dropped 8.2 percent to $9.05, falling the most since November. CFO Richard Xue will leave the company for personal reasons while the board will search for a replacement, it said in a statement yesterday.

Fraud Probes

The China-US gauge posted its largest three-day decline since June 2012 after the Chinese affiliates of the biggest accounting firms received a six-month ban on Jan. 22 as they failed to comply with the order of the Securities and Exchange Commission on documents needed for a series of fraud probes. China’s securities regulator warned the U.S. of “consequences” of the decision in its microblog post Jan. 24.

“The market had a stronger reaction to the long-dragging auditor issue between U.S. and China this time as it seems the tension between the two sides has intensified instead of improving as people had expected,” Henry Guo, a senior analyst at ABR Investment Strategy LLC, said yesterday by phone from San Francisco. “People’s concern may be relieved if we see companies release their 2013 earnings smoothly in the coming two months.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., slid 0.2 percent to $34.16, following a four-week slump. The China-US index slipped 0.7 percent to 97.31 yesterday.

The Hang Seng China Enterprises Index in Hong Kong dropped

2.2 percent to a five-month low of 9,792.58. The Shanghai Composite Index sank 1 percent to 2,033.3.

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