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October 25, 2006

Is 9You Worth $100 Million To The9?

posted by MR WAVETHEORY at 10/25/2006 10:58:00 AM
The China rumor mill is busy at work. The rumor of the hour is that The9 Limited (ADR) (Nasdaq NCTY) is considering acquiring 9You (which means "Long Game" in Chinese). Insiders are asking for for US$100 million from The9 Limited. 9you CEO Wang Zijie replied that the rumor is 100 percent impossible and not worth further comment. If any similar takeover were to occur in the future, it would more likely be 9you acquiring The9, Wang said. Dragon Groove, which invested US$5 million in 9you in 2005, is considering exiting from its investment in 9you. Dragon Groove head Sun Taicang is reportedly leading 9you's listing plan. The9 had no comment on the rumor.

Is this deal possible?
The9 has a market capitalization of $570 million and cash on hand of $83 million in the most recent quarter so it certainly is possible if it is done with cash and stock. It may require some additional share issuances.

What would the deal bring to The9?
According to 9You, 9You is the largest operator of online music games, China’s biggest casual game operator,one of biggest interactive entertainment portal sites in China, which is the first to integrate online game services (MMORPG, massive and medium size casual games, mobile game, etc.), fashional digital entertainment contents, a variety of chatting and community services equipped with Avatar System, wireless value-added services and other premiere services to the Chinese language internet users all over the world. With its wide-coverage for all major types of user needs related with digital entertainment service, the 9you.com represents the latest service style and the newest trend for the digital entertainment provider business in China Market. A series of awards and ranking are obtained by 9you.com in 2005 which include Top 10 Online Game Operator in China, and Top 10 Online Game Developer in China, the Cool Company,Shanghai First-class Service Brand in Information Service Industry, etc.

Who will make money?
The major investors of Nineyou are several leading international venture capital funds, including the Carlyle Group, which is the world’s largest private fund investment group, China Merchant Fortune Ventures, and Dragon Groove Inc. who has the background as international strategic investor.

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