IPO investors have long been mixed about partial spin-offs, and just outright nervous when it comes to the term ‘tracking stock’ in an IPO. Regardless of how you feel, it is impossible to deny whether or not the Changyou.com (NASDAQ: CYOU) spin-off IPO from Sohu.com (SOHU) has been successful. In early April the IPO came out at a premium open. Shanda Interactive Entertainment Limited (NASDAQ: SNDA) now plans to submit a draft registration statement on a confidential basis to the SEC for a possible IPO of its Shanda Games Limited. This is the online games business.
To show how or why Shanda Interactive is considering this, the creation of instant value is hard to not notice. Changyou.com priced at $16.00, yet it has only traded in the teens on two days after the IPO. It has been a solid performer and its shares were up north of $33.00 today.
On April 2, 2009, the day of the Chnagyou.com IPO, Sohu.com closed at $42.31. Shares closed today around the $58.00 mark.
Shanda Interactive closed above $52.00 today despite a 5% drop on the day, but its stock was at $42.30 on the close of April 2. So Shanda has been an indirect beneficiary, albeit not quite as much.
Shanda noted this exploration is further development as an interactive entertainment media company, and will provide Shanda Games with a sharper focus and greater flexibility to pursue strategic opportunities in enhancing its leadership position in the online games sector. Just as we saw in the Changyou.com spin-off from Sohu.com, Shanda expects to remain the majority shareholder after the completion of the proposed IPO.
This proposed IPO is expected to commence as capital markets conditions permit and is subject to filing a registration statement with the SEC. All terms and dollar amounts have not yet been determined.
When you see the success of one IPO, you often see similar moves from competitors. That is particularly the case in China. Maybe we can even call this second effort a knock-off IPO spin-off now that this has been seen.
JON C. OGG
MAY 26, 2009
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