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Giant Interactive to Review Buyout Offer

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One of China’s leading online game developers, Giant Interactive Group Inc. , recently announced the formation of a special committee of three members to evaluate the preliminary buyout offer received from its chairman Yuzhu Shi and an affiliate of BaringPrivate Equity Asia (collectively called ‘consortium’). The company’s board received the offer on Nov 25, 2013.

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.

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, comprising three independent directors of the company, Peter Andrew Schloss, Andy Y. Yan and Jason Nanchun Jiang 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.

In November, Giant Interactive reported third quarter 2013 results, wherein its adjusted earnings increased 1% to 25 cents per share 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.

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 it continues to explore other cost effective distribution channels to enhance profitability.

Giant Interactive is a leading online game developer and operator in China in terms of market share and focuses on massively multiplayer online role playing games.  Currently, Giant operates multiple games, including the ZT Online 1 Series, ZT Online 2, Elsword, and World of Xianxia.

Giant Interactive holds a Zacks Rank #3 (Hold). Other better ranked Internet retailers include Taomee Holdings Ltd , YY Inc. (YY - Free Report) and Brightcove Inc. (BCOV - Free Report) . While Taomee and YY sport a Zacks Rank #1 (Strong Buy), Brightcove holds a Zacks Rank #2 (Buy).

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