Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA) is seeing an exponential volume surge at the open. The Chinese interactive gaming software company has now seen more than 3.4 million shares trade hands and shares are up almost 1% at $28.22. Shanda’s average daily volume is about 900,000 shares and today’s volume surpassed its post-earnings rally of 3.17 million shares.
What is going on is that the company recently announced it would buyback up to $200 million in common stock. But now it is selling $155million in senior convertible notes due 2011 with terms being 2.00%semi-annual interest and an equivalent convertible price of $35.00 pershare. It also has $20 million for over-allotments.
The entire senior convertible debt offering along withcash on hand to repurchase an aggregate of $175 million of its ADS’s issubject to minimum and maximum number of ADS’s. This is pursuant to anaccelerated share repurchase transaction that Shanda entered into withone of the initial purchasers or its affiliates.
Issuing convertible debt to buy back shares — this is a leveragedstrategy that sometimes works and sometimes does not. This company hasbeen awash in liquidity before, but this will change the debt to equityratios of its balance sheet. In a more difficult stock market, this isa gutsy move that may leverage something that didn’t need leverage.
Jon C. Ogg
September 10, 2008