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China's Shanda Games IPO flops after investors pay up

September 25, 2009 |  3:04 pm

Greed got the best of the owners of Chinese online gaming company Shanda Games Ltd. -- and the buyers of the firm's initial public stock offering paid the price.

Shanda’s shares plunged today as they began trading, a day after the company's parent and its underwriters squeezed as much as they could out of investors who bought the IPO.

The stock tumbled $1.75, or 14%, to finish at $10.75 on Nasdaq.

Shanda Games is a spinoff of Shanda Interactive Entertainment, which thanks to Shanda Games became China’s biggest online gaming company. Thursday's IPO allowed Shanda Interactive to cash out of a large chunk of its holdings: It raised $880 million for itself by selling 70.4 million of the 83.5 million shares offered in the offering. Shanda Games raised $163 million in the deal.

Shanda

The IPO was initially expected to offer 63 million shares between $10.50 and $12.50 a share. Earlier this week Shanda upsized the offering to 83.5 million shares, and when it came to pricing the offering on Thursday the underwriters, led by Goldman Sachs and JPMorgan Securities, went for the top of the price range.

The upsizing made Shanda Games the year's biggest U.S. IPO, raising $1.04 billion in all.

But the decision to grab as much cash as possible left no room for a first-day pop to reward the IPO investors.

"People believe Shanda Games has been priced at market," Tian Hou, a New York-based analyst with Pali Capital Inc., told Bloomberg News. "What’s the room to go up if it’s already priced at market?"

Shanda Interactive’s U.S.-traded shares also slumped, falling $6.77, or 12%, to $50, after surging early in the week on prospects for the deal.

The poor reception for Shanda Games contrasts with the hot offering from rival Chinese online game company Changyou.com in April. Changyou.com sold shares at $16 each, and they jumped to $20.02 on their first trading day. On Friday Changyou.com closed at $37.23.

-- Tom Petruno

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