Shares of Giant Interactive Group Inc reached a new 52-week high of $11.47 on Dec 09 after the company received a buyout offer from its chairman Yuzhu Shi and an affiliate of BaringPrivate Equity Asia (collectively called ‘consortium’) on Nov 25. In fact, shares of this leading Chinese online game developer have been rising ever since it reported solid third quarter 2013 results on Nov 6. Shares of Giant Interactive closed at $11.39, reflecting a year-to-date return of 100.9%.
The company’s long-term estimated EPS growth rate is 15.61%. Average volume of shares traded over the last three months came in at approximately 2,793K.
On Nov 25, the company received a buyout offer where the consortium proposed the acquisition of all of the company’s shares, including American Depositary Share (ADS) for $11.75 per share/ADS. Each ADS represents one ordinary share of the company.
Per the deal, the consortium will pay about $2.82 billion in cash, which will be financed using a combination of debt and equity capital. As of Nov 25, the consortium owned about 47.2% of the company's shares.
Giant Interactive has formed a special committee to review the proposal. Additionally, the special committee has retained Fenwick & West LLP as its U.S. legal counsel and Kilometre Capital as its external strategic consultant. They will assess the offer and negotiate terms to provide maximum value to its shareholders.
Strong Third Quarter Results
The company reported strong third quarter 2013 results in early-November, where adjusted earnings of 25 cents increased 1% on the back of top-line growth. Earnings also beat the Zacks Consensus Estimate by 8.7%. Net revenue was in line with the Zacks Consensus Estimate and grew 8.6% year over year, driven by an increase in active paying accounts for online games and increase in average revenue per user for online games. Gross profit also increased 9.5% year over year on account of higher sales.
Moreover, the company is optimistic about expanding its portfolio in 2014 and hopes to launch several new mobile games. The company has a prudent expense management system and continues to explore other cost effective distribution channels to enhance profitability.
Other Stocks to Consider
Giant Interactive is currently holds a Zacks Rank #4 (Sell). Some better ranked Internet retailers include Taomee Holdings Ltd (TAOM - Snapshot Report), YY Inc. and Tucows Inc. (TCX - Snapshot Report). All of them sport a Zacks Rank #1 (Strong Buy).