M&A

Third time unlucky

Shi Yuzhu drops bid for Israeli gaming firm

Shi-Yuzhu-w

Shi: hoped for Playtika sale

Circle of Friends (or COF) is one of the many attractions on WeChat, Tencent’s social media app. Its primary function, as the name suggests, is helping friends to congregate online. For businesspeople their COF also serves as a network to exchange ideas and sway opinions.

In April this year, the COF frequented by Shi Yuzhu, the boss of gaming firm Giant Interactive, buzzed with speculation that he had been detained by police, pending an investigation by the China Securities Regulatory Commission (CSRC).

The 57 year-old hotly denied he was under arrest. However, Shi also complained on his WeChat account that “many people have been bad-mouthing me at the CSRC”, which stoked further rumours. Some suggested that Giant’s longrunning attempt to take over Israeli gaming firm Playtika was the source of trouble.

Events since then have indicated there could have been some truth to the speculation, at least when it comes to the circle of friends involved in the ill-fated acquisition.

In a stock exchange circular this month, Giant said it was abandoning a plan to purchase Playtika from a consortium called Alpha Frontier, an entity backed by a group of investors including Shi and some of his acquaintances.

Previously listed in New York, Giant was taken private and relisted in Shenzhen in 2016 as one of the haigui (or ‘sea turtle’) tech firms coming back to China in search of a higher valuation.

A few months after the A-share return, Shi set up Alpha with several other investors to pay Rmb30 billion ($4.4 billion) for Playtika, which was then owned by American gambling firm Caesars Entertainment.

Playtika specialises in online card games played on smartphone apps and Shi’s plan was to sell the Israel-based firm to his listed entity Giant.

However, Giant’s first attempt to buy Playtika in a cash-plus-share offer lapsed after regulatory intervention.

At the time, the central authorities wanted to put a brake on a global M&A spree from Chinese buyers, including firms like Anbang which had splurged big money on the likes of the New York hotel, the Waldorf Astoria (see WiC371).

A second attempt to take over Playtika last year – this time via an all-share offer – was vetoed in July, Caixin Weekly reported, because the CSRC was concerned that Playtika could be accused of involvement in gambling.

Following that setback Giant immediately made a third offer to buy Playtika for Rmb42.5 billion. But this new all-cash offer has now been abandoned as well, according to the company’s most recent announcement.

Shareholders at Giant have already been through some turbulent times since the company’s market value peaked at Rmb150 billion in March 2017. Its market capitalisation had fallen to Rmb35 billion as of this week.

Shi may also need to sort out his own finances. According to Yema Finance, a news portal, he struck a deal with Alpha’s co-investors to buy back their shares if he was unable to transfer the ownership of Playtika into Giant within 36 months.

Perhaps he will turn to the exclusive Taishan Club – a small group of entrepreneurs named after Shandong’s best-known mountain – for advice. Like Shi, many of its members are prominent businesspeople, including the bosses of powerful financial firms such as Minsheng Bank and China Oceanwide (see WiC335).

Shi has been on the brink of bankruptcy in the past, says Yema Finance, especially in 1993 when a series of investments in Zhuhai went sour. But some timely financial assistance from his friends at the Taishan Club helped him stay afloat. Some of them then put their money on Shi again when they invested in Playtika (via Alpha).

This time around the friendships may have gone through another stress test. Onlookers, and possibly the regulators as well, will be watching closely as to how things turn out for Shi’s COF group.


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