China’s No 1 mobile games publisher CMGE clears hurdle to privatisation

The largest publisher of mobile games in China is poised to join the ranks of mainland Chinese companies that are opting to delist in the United States.

China Mobile Games and Entertainment Group (CMGE) moved a step closer to being taken private after controlling shareholder V1 Group agreed to sell its entire 42.94 per cent stake in the company for US$297.96 million, according to V1’s filing with the Hong Kong stock exchange on Friday.

That followed Nasdaq-listed CMGE’s decision last week to enter into a merger agreement with Pegasus Investment Holdings and Pegasus Merger Sub, companies which represent a consortium of independent third-party Chinese buyers.

The deal will entail cash payments of US$1.5714 per Class A or Class B ordinary share, and US$22 per American depositary share, each of which represents 14 Class A ordinary shares.

Upon completion of that transaction, which is subject to majority shareholders’ approval, all of the Nasdaq-traded shares of CMGE will be cancelled and delisted.

The group of buyers include the unnamed affiliates of Orient Hongtai Zhihe (Beijing) Investment Management Company, ChangJiang Growth Capital Investment Company and Beijing HT Capital Investment Management Company.

Once its merger deal is approved, CMGE will be the latest US-listed Chinese company to agree to go private after online games operators Perfect World and Shanda Games.

Internet security services supplier Qihoo 360 Technology, social network operator Renren, internet data centre provider 21 Vianet Group, online dating platform Jiayuan .com and online property services firm E-House China Holdings are all considering recent bids to be taken private.

The massive US$9.6 billion offer for Qihoo would, if realised, set a new record for a Us-listed Chinese internet company being taken private. 

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In V1’s regulatory filing, chairman Zhang Lijun said that the merger deal “presents an invaluable opportunity for the company to realise its investment gain in CMGE at a fair price, and use the proceeds to further develop its remaining businesses and for future potential acquisitions”.

V1, an investment holding company formerly known as VODone, planned to use the estimated HK$2.31 billion (US$298 million) net proceeds from the deal a variety of purposes. 

These including paying a special cash dividend, further developing the group’s tele-media business, upgrading its lottery related operations, setting up a reserve fund for potential investments in new internet ventures, and for general working capital. 

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Guangzhou-based CMGE last year posted a 904.8 per cent increase in net profit to 232.1 million yuan (US$37.89 million), up from 23.1 million yuan in 2013, on the back of a significant increase in paying user accounts.

Revenue last year grew 258.3 per cent to 1.26 billion yuan, from 353 million yuan in 2013. At the end of December, total paying user accounts for social games reached 21.1 million, while accounts for single-player games hit 18.5 million. It had 3.2 million paying user accounts for so-called bundled games.

“By successfully securing top games and intellectual property [deals] from Japan, the US and Taiwan last year, CMGE’s [games] pipeline is becoming more diversified,” Alicia Yap, head of China internet research at Barclays, said in a report.

CMGE chief executive Ken Jian Xiao, however, said the company was “seeing increased competition”. 

Combined data from Analysys International and Barclays showed that CMGE recorded a 20.1 per cent share in mainland China’s mobile gaming publishing market in the fourth quarter last year. 

Rivals Longtu Games and iDreamSky remained within striking distance with respective shares of 16.7 per cent and 15.7 per cent.