ENTERTAINMENT: Newly Re-Listed Giant Joins Global Game Hunt

Bottom line:  Giant Interactive’s new bids for Caesars Entertainment online game unit and Supercell show it has lots of cash for global acquisitions, which it hopes to use to vault it into the big leagues of Chinese online game companies.

Giant chases global acquisitions

Online gaming company Giant Interactive may be mostly a memory for US investors, following its de-listing from New York in 2014. But the company wants the world to know it still has global aspirations. That’s my interpretation of the latest series of reports, which have Giant pursuing several major global acquisitions in Finland, Israel and the US.

Two of the reports appear to be related, and say Giant is in talks to buy the online game unit of US gambling giant Caesars Entertainment (Nasdaq: CZR), which includes Israeli game developer Playtika. One of the reports adds that Giant is also in talks to potentially join a group led by Chinese Internet giant Tencent (HKEx: 700), which has agreed to buy a controlling stake of Finnish game giant Supercell

All of this appears to show that Giant is moving into a new phase of its development, after becoming one of the first US-listed Chinese companies to privatize from New York. Following that move, the company spent most of the last 2 years re-listing in China at a higher valuation, and appears to be close to achieving that aim through a backdoor listing using a shell company called New Century Cruises (Shenzhen: 002558).

It’s still a bit unclear what kind of valuation Giant will get with its new listing, since the process is still ongoing. Its latest market value stood at 84 billion yuan ($12.5 billion), which is well above the $3 billion it was worth when it de-listed from New York but below the $16 billion that founder Shi Yuzhu predicted when he announced the privatization bid.

But one thing that’s clear is that Shi and Giant now have a lot of cash and access to more funds through this new Chinese listing, and he’s eager to start spending it on global acquisitions. We’ll begin with the US report, which simply says that Giant is looking at a deal to buy Caesars online game unit for more than $4 billion. (English article; Chinese article)

A Chinese media article that appears to be related says Giant is in talks to buy Playtika, an Israeli game developer that Caesars purchased in 2011 for a far more modest $90 million. That would indicate that either Playtika has grow massively since 2011, or that more likely Caesars has combined the company with other online gaming assets to bring it to its current valuation.

Leading Bidder

In this case the reports citing the $4 billion price tag are coming from Reuters and Bloomberg, so I would tend to believe those over the Chinese reports that only mention Playtika. The foreign reports say the Giant-led group has emerged as the leading bidder for the Caesars online game business, one of the largest developers of casino-style games on Facebook (Nasdaq: FB), and has been granted a short period for exclusive negotiations.

Next there are the other reports that say Giant is also in talks to join the Tencent group that last month announced a blockbuster deal to buy 84.3 percent of Finnish game developer Supercell for $8.6 billion. (previous post) Those reports note that Giant previously tried to lead its own group to buy the Supercell stake, but failed in that attempt. Now that Tencent has emerged as the winner, it is trying to assemble a group to raise the massive amount of cash needed to fund the purchase and is considering Giant as a possible contributor.

All this shows that Giant wants to be considered a major Chinese online game company, even though it never really distinguished itself from domestic leaders Tencent and NetEase (Nasdaq: NTES) in the past. But Shi Yuzhu has certainly shown himself to be a leader by being one of the first in a wave of de-listings by Chinese firms from New York, and his latest bids show he has lots of cash and still hopes to someday become a serious player in China’s online game market.

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