Chairman of China Mobile Games exclusively disclosed the path to privatization: There is still a chance to return after the A-share plunge

He admitted that the company had considered the issue of privatization as early as the beginning of 2014. It felt the pressure during this round of A-share bull market and finally chose to privatize and choose the opportunity to list on A-shares.

The huge valuation gap has attracted Chinese and American game stocks to start privatizing, and with it, the A-share market environment has changed rapidly. This also poses challenges for privatized China companies.

Zhang Lijun, chairman of the board of directors of China Mobile Games Entertainment Group (hereinafter referred to as "China Mobile Games"), which was just privatized this month, exclusively disclosed the story behind the privatization in an exclusive interview. He admitted that the company had considered the issue of privatization as early as the beginning of 2014. It felt the pressure during this round of A-share bull market and finally chose to privatize and choose the opportunity to list on A-shares.

China Mobile Games is the first mobile game company in China to land on NASDAQ. It has not been listed for three years. In 2010, after First Video (00082.HK) acquired a mobile games developer, it jointly formed China mobile games with two other companies. In June 2013, it adopted the "introduction listing" method and was directly listed on NASDAQ.

On August 11, China Mobile Games announced that it had completed the merger with Pegasus Merger SubLimited, a wholly-owned subsidiary of Pegasus Investment Holdings Co., Ltd. After the merger, China Mobile Games became the fourth privatized China game company listed in the United States after Shanda, Perfect and Giant. Landing on the domestic capital market is its next strategy.

Looking back at the entire privatization process, Zhang Lijun said frankly,"Some senior officials are reluctant to part with privatization, some employees are still worried about gains and losses, and have always had differences on the transfer price. In the end, privatization can be successfully achieved. I think what I understand more is that human nature is really very important. At critical moments, what loses is not your ability or money or wealth. What loses is humanity, and winning is also the humanity that wins."

Four major reasons drove the listing of U.S. stocks, with a three-year profit of HK$2.3 billion

. Zhang Lijun said that just as he chose to list on U.S. stocks back then, this delisting from U.S. stocks has also been carefully considered. There are four main reasons for choosing to list on U.S. stocks in 2012:

First, domestic mobile games were already very popular in 2012, and many competitors were constantly born. New companies are developing rapidly. If they do not become a listed company, it will be difficult to remain a leader.

Second, China Mobile Games has become the first game stock in China to land in the United States, which is very beneficial to gaining capital support in the future. Achieving listing at this time point is crucial for future development.

Third, manage and operate our company according to the standards of listed companies, so that our level of corporate regulation will be greatly improved and this company will have strong competitiveness.

Fourth, my games business segment will gain market valuation and be valuable. After it becomes valuable, whether it is our management shares or the interests of our management team will be clearly demonstrated. It will be easier for us to attract outstanding talents in the industry. It will also inspire employees of our mobile games to work.

After listing, China Mobile Games has indeed achieved rapid development and gained the trust of China's sovereign investment, including China Investment and China Social Security Fund, both of which have invested in China Mobile Games, and Barclays Bank has also invested in China Mobile Games. The most direct benefit is reflected in the fact that after this privatization, China Mobile Games achieved a revenue of HK$2.3 billion in three years after its listing.

According to Analysys data, as of the fourth quarter of 2014, China's mobile games ranked first among the all-platform publishers of mobile games in China for the sixth consecutive quarter, with a market share of 20.1%. The first quarter of this year's financial report showed that the company's total net revenue during the reporting period was RMB 441.8 million, a year-on-year increase of 105.8%; net profit was RMB 63.4 million, compared with 34.6 million yuan in the same period last year.

The valuation of game stocks is "ice and fire" inside and outside, and it is "rational and reasonable" to return to A-shares

. However, with the listing of a large number of game companies in A-shares and the rapid development of A-shares, China Mobile Games is feeling the pressure.

Zhang Lijun revealed that the privatization of China Mobile Games was considered in early 2014. At that time, the mobile games market was actually developing rapidly and was still very hot. But amid this popularity, China Mobile Games saw the future development direction of mobile games.

"In fact, as the concept of mobile games, I now think it can still relatively strongly support a number of listed companies. The market value of the entire mobile phone industry is 10 billion yuan or 20 billion yuan. Everyone has different opinions. In my opinion, based on the number of mobile phones in China itself, its mobile games will still maintain a very good development rate. However, if we continue to operate relevant platforms, mainly in the mainland of China, we will face many problems if we continue to develop such a structure."

Zhang Lijun bluntly said that first of all, there will be some structural constraints. Because since the second half of 2014, China's A-share market has developed rapidly and the index has risen rapidly. Domestic companies that are much worse than China Mobile Games have much higher market capitalizations than China Mobile Games. China Mobile Games has experienced the blow of short-selling institutions in the course of its development. Therefore, on the one hand, China Mobile Games are under pressure from short-selling institutions, and at the same time there are companies with very large market capitalisation in the A-share market to compete. In the long run, it is unfavorable for China Mobile Games to maintain its leading position in the industry. Therefore, if China Mobile Games can return to the A-share market, China Mobile Games can achieve equal competition with similar domestic companies. Therefore, due to structural differences, this gap results in unequal competitive status and suppressed corporate capabilities.

In fact, with the listing of many domestic manufacturers in A-shares, the amount of financing is very large, and these companies rely on their abundant funds and high prices to poach people from them. In addition, in terms of IP competition, China Mobile Games is undoubtedly under considerable pressure to compete with domestic high-market capitalization companies. Based on these ideas, Zhang Jun resolutely decided to return to A shares, he thinks, this is strategically more rational and reasonable arrangement.

By the way, compare his A-share friends, as of today's close, A-share game company palm technology (300315.SZ) market value in 30 billion yuan, Kunlun Wanwei (300418.SZ) market value for 252 yuan, simply let the game stocks "cry dizzy in the toilet."

At present, we are still optimistic about the future healthy development of A shares.

In fact, privatization is not smooth sailing. Starting in 2014, the Chinese mobile game team began to try privatization, delisting from the United States back to the private market, negotiations are very intense.

According to Zhang Lijun, especially in June this year, when China Mobile Games issued an offer to form a consortium to carry out privatization, there were many companies hoping to bid, including well-known domestic Internet companies, well-known media, and many corporate executives could even call one for an hour.

Regarding this privatization, in Zhang Lijun's view, after privatization, it is nothing more than finding a domestic partner or buyer so that China's mobile game business can continue in China. This has caused many people, but they don't know how to choose. In the end, a response team had to be formed to deal with and bid for the companies and personnel of China Mobile Games. In the end, Zhang Lijun chose Orient Securities to achieve the merger.

The privatization of China Mobile Games has achieved huge financial benefits and successfully escaped the collapse of U.S. stocks. Zhang Lijun revealed that at that time, I acquired three game companies with cash and stock worth 500 million yuan. During the three years after the acquisition, the mobile game sector contributed benefits and dividends to us, which basically achieved cost recovery.

Three years after its listing, it was directly privatized and achieved revenue of HK$2.3 billion. Overall, the story of China Mobile Games is a legend. "Especially today, when we are in the current state of A-shares, more people think my decision was quite wise. The price I sold at that time was US$22.5. Now, Chinese mobile games may not reach this level in the American market. U.S. stock prices have plummeted, and A-shares are not in good shape. It is a wise move for us to privatize China Mobile Games at this price. It not only makes the company make money, but it should be said that at the right time, China Mobile Games will return to the A-share market." Zhang Lijun said.

However, since the A-share bull market has not been smooth sailing, since mid-June this year, A-shares have experienced major ups and downs, and market panic has intensified, posing challenges to the return of China Mobile Games to A-shares. In this regard, Zhang Lijun believes that although the A-share market is in a relatively depressed state, But after it squeezes the bubble in the future, there will still be a large market and opportunities for healthy development. China Mobile Games is now back, doing the work of hiding its strength and biding its time, and sorting out its business well.

Editor: yvonne