Day Trader Alert: Shanda Interactive Entertainment Ltd. (SNDA)

By Douglas A. McIntyre Updated Apr 27, 7:57PM EDT · Published Sep 10, 8:47AM EDT

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

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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

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A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.