1. Prepared by Group H: Adam Zhou; Antony Yu Charlie Zhao, Gavin Liu, Julia Tien, Johnson Zhou Legend Changed the World

2. Sources: iResearch, JP Morgan, Goldman report and companies data Contents Industry Overview and Competition AnalysisAcquisitionThe Puzzles in Acquisition What is Next The Impacts on China Internet Industry

3. Sources: iResearch, JP Morgan, Goldman report and companies data Users: Types of Accessing Methods (Million) China Internet Industry Overview Internet Market in China (By Dec.31,2004) Item Number (Million) Annual Growth Rate Internet User94.0034.70% Computer Host41.6018.20% Domain Name4.3227.10% www. Website6.6912.30% Source: CNNIC Main players: Sina, Sohu, Netease, Tom, Yahoo CN, Tencent QQ, 21CN, china.com

4. Sources: iResearch, JP Morgan, Goldman report and companies data Shanda Interactive Entertainment Limited Establishment: Nov. 1999 The largest operator of online games in China: LEGEND Stock Exchange: NASDAQ IPO Date: May 13,2004 Ticker Symbol: SNDA Total (June 2,2004): 15,360,121 ADSs

5. Sources: iResearch, JP Morgan, Goldman report and companies data Shanda’s Competition Analysis Main business: online gaming Annual revenue: 1,276 million (40% of total sale amount in this field) Main competitors: Netease the 9 Kingsoft Wemade

6. Sources: iResearch, JP Morgan, Goldman report and companies data Netease Milestones: Jun. 1997 Establishment Chinese Searching Engine Jun.2000 IPO (NASDAQ) 3.184 million ADSs Dec.2001 First MMORPG Joyful Journey West Online Feb.2005 Fiscal report 2004 2nd Online Game operator

7. Sources: iResearch, JP Morgan, Goldman report and companies data The 9 Milestones: Aug 1999 www.gamenow.comwww.gamenow.com Online virtual community May 2000 www.the9.comwww.the9.com Entertainment website Sep 2003 MU beta testing (30K concurrent users on 1st day) Online game operation Dec 2004 IPO (NASDAQ) 6.075 million ADSs The Revenue Structure of NCTY

8. Sources: iResearch, JP Morgan, Goldman report and companies data Sina Corporation Online media company and value-added information service provider SINA Corporation SINA mobile SINA.comSINA.net SINA online SINA E- commerce Online newsOnline ADsSMSIRPWAPKJAVAE-mailUCOnline gameSearchingEnterpriseservicesOnlineshoppingTravelservice

9. Sources: iResearch, JP Morgan, Goldman report and companies data Sina

10. Sources: iResearch, JP Morgan, Goldman report and companies data Yahoo CN Yahoo: Global internet media, 24 websites in 12 languages Yahoo CN: Establishment--Sep. 1999: www.yahoo.com.cn 20thwww.yahoo.com.cn Main businesses: Searching Engine Communication channel (email, messenger) Information (news, finance, weather) Community (chat, clubs, photos)

11. Sources: iResearch, JP Morgan, Goldman report and companies data Tom.com Mid 2000: Launched flagship website, www.tom.comwww.tom.com Q2 2003: Ranked No. 4 Internet portal in China Q4 2003: Launched online game - Karma Online Portal ranked No.16 in the world (In terms of traffic) Tom.com Online advertising Others (Skype, E-commerce, CRM) Wireless Internet (SMS, MMS, Wap, Java) Online games (Karma Online)

12. Sources: iResearch, JP Morgan, Goldman report and companies data SOHU.COM Inc Main Businesses: www.sohu.comwww.sohu.com: Mass portal and leading online media destination www.sogou.comwww.sogou.com: Interactive search engine; www.chinaren.comwww.chinaren.com: The #1 online alumni club www.17173.comwww.17173.com: The #1 games information portal www.focus.cnwww.focus.cn: Top real estate website www.goodfeel.com.cnwww.goodfeel.com.cn: Wireless value-added services provider. Aug.1996 ITC Electronic Tech. Feb.1998 CHINESE searching engine—SOHU Mar.1999 Matrix of web properties

13. Sources: iResearch, JP Morgan, Goldman report and companies data Contents Industry Overview and Competition AnalysisAcquisitionThe Puzzles in Acquisition What is Next The Impacts on China Internet Industry

14. Sources: iResearch, JP Morgan, Goldman report and companies data Drivers for Diversification Government Regulation and Society Pressure On Online Game Too Much Cash : $440 Millions by the end of 2004 Fierce competition would lower the growth rate of gaming

15. Sources: iResearch, JP Morgan, Goldman report and companies data 2001-2004 Business Structures of Shanda

16. Sources: iResearch, JP Morgan, Goldman report and companies data Shanda is Changing The causal game and other business are becoming more and more important.

17. Sources: iResearch, JP Morgan, Goldman report and companies data The road of Shanda M&A Internet is a industry run with the time.

18. Sources: iResearch, JP Morgan, Goldman report and companies data The long –term strategy of Shanda To b e Online D isney

19. Sources: iResearch, JP Morgan, Goldman report and companies data Why SINA Product structure of Sina and Shanda can be complementary Sina has undisputable advantages in China ’s Internet industry Sina’s vertical channels are crucial to Shanda’s IPTV strategy. Sina’s Stock was undervalued. The Shares of Sina’s are disperse enough.

20. Sources: iResearch, JP Morgan, Goldman report and companies data Business & Users Complementary

21. Sources: iResearch, JP Morgan, Goldman report and companies data A Giant in Portal, Wireless and Gaming MMORPG Online Adv. Casual Game Reservation Auction Communicator MailboxSearch Wireless IPTV(E) Multi-players on Game Operation Platform Sina Business Shanda Business NO. 1 Portal

22. Sources: iResearch, JP Morgan, Goldman report and companies data Vertical Channels The contents of these channels are crucial to Shanda IPTV

23. Sources: iResearch, JP Morgan, Goldman report and companies data Fragment of Sina’s Shares The fragment of shares makes Sina a real public company, which was controlled by professional managers rather than shareholders.

24. Sources: iResearch, JP Morgan, Goldman report and companies data Sina’s Earning

25. Sources: iResearch, JP Morgan, Goldman report and companies data Low P/E Ratio of Sina Till Q4.04, total value of Sina was about 11.3~15.1 billions, and therefore, the stock price would be $ 22.5~$30.1. Feb. 8 SNA P/E ratio=15.5 The stock was undervalued in early Feb.

26. Sources: iResearch, JP Morgan, Goldman report and companies data What Has happened? Announce & Negotiation AcquisitionOrigin Feb. 18, 2005Feb.7-17, 2005Oct.10 2004

27. Sources: iResearch, JP Morgan, Goldman report and companies data Contents Industry Overview and Competition Analysis Acquisition The Puzzles in Acquisition What is Next The Impacts on China Internet Industry

28. Sources: iResearch, JP Morgan, Goldman report and companies data Clues of Collusion Yahoo: white knight or the target of poison pill? Timing of Poison Pill Stone’s Shares Shanda: no enough cash for hostile takeover? Institutional Investors

29. Sources: iResearch, JP Morgan, Goldman report and companies data Topic one: Poison Pill What is Poison Pill? Any tactic by a company designed to avoid a hostile takeover. Designed to make the target company unattractive to the potential buyer. Sina’s Poison Pill Each Right entitles the registered holder to purchase from the Company one Ordinary Share at a Purchase Price of $150 per Ordinary Share Effectively dilutes the equity ownership of Shanda (the hostile party), making a takeover much more difficult.

30. Sources: iResearch, JP Morgan, Goldman report and companies data Poison Pill Actually announced on Feb 22. Poison Pill Puzzles! Should have been prepared Announce & Negotiation AcquisitionOrigin Feb. 18, 2005Feb.7-17, 2005Oct.10 2004 TIME

31. Sources: iResearch, JP Morgan, Goldman report and companies data Why No Poison Bill Earlier? Defensive Plan A: If Sina had prepared a defensive plan since last Oct. the triggering point would be 10%

32. Sources: iResearch, JP Morgan, Goldman report and companies data Poison pill Actual announced on Feb 22. Poison Pill Puzzles! Should have been prepared Announce & Negotiation AcquisitionOrigin Feb. 18, 2005Feb.7-17, 2005Oct.10 2004 TIME TARGET Sina do not want to be taken by Yahoo because of main business overlap and potential to lose its own Brand

33. Sources: iResearch, JP Morgan, Goldman report and companies data The effect of current poison pill to Yahoo! Cost of Yahoo Expected market value per share over $50* Aim of percent share needed 51% Total share acquired 47.8M Total acquisition cost $2.39B Defensive Plan B: * The price here is mostly decided by the market expectation when Yahoo announcing its merger plan. It is roughly estimated to be the same as the highest price of year 2004, because at this time Yahoo can only got share from institute shareholders by negotiating the price.

34. Sources: iResearch, JP Morgan, Goldman report and companies data Betrayers in Sina? 1.Stone sold its shares to Shanda Consequently losing money on its main business, Stone needed cash to invest in new project and keep its stock price. Stone continued to increase its equity stake in China Cable, from equity interest of 5.54% at the beginning of the period to 13.77% at the end, through a jointly controlled entity. investment in China Cable increase 2.Management team was keeping exercise their options. 2004.10.29-12.8, the top management cashed out 1,541,800 shares for $47.49 millions, and price was ranged from $33-37.

35. Sources: iResearch, JP Morgan, Goldman report and companies data Shanda: No Enough Cash for Hostile Takeover? Cost of Hostile takeover The Total free cash and cash equivalent for Shanda: was 444-92=$352 MM Debt Ratio: 53.16% Total asset for company: $517.4 MM Shanda won’t have enough cash to takeover SINA if it can not be accepted by DOB. Why did it take 19.5% if only want to be largest shareholder?

36. Sources: iResearch, JP Morgan, Goldman report and companies data Institute Investors—Collusion??? Some institutes were very active in the event! Institute investors

37. Sources: iResearch, JP Morgan, Goldman report and companies data Influence of Poison Pill Announcement to Stock Price Price Graph Volume

38. Sources: iResearch, JP Morgan, Goldman report and companies data Institutional Investors: No Driver for Collusion but understanding Institutional Investors had very few shares in Shanda but more in Sina. Institutes Investors’ benefit is more sensitive to Sina than Shanda. Shanda can not be easy affected by institutional investors. But Sina is! Institutional Investors had very few shares in Shanda but more in Sina. Institutes Investors’ benefit is more sensitive to Sina than Shanda. Shanda can not be easy affected by institutional investors. But Sina is! Investors thought Sina was undervalued at the beginning of Feb. Shanda’s taking over would increase Sina’s market performance. Shanda’s stock price would decline in short term ( They shorted ) Investors thought Sina was undervalued at the beginning of Feb. Shanda’s taking over would increase Sina’s market performance. Shanda’s stock price would decline in short term ( They shorted )

39. Sources: iResearch, JP Morgan, Goldman report and companies data Contents Industry Overview and Competition AnalysisAcquisitionThe Puzzles in Acquisition What is Next The Impacts on China Internet Industry

40. Sources: iResearch, JP Morgan, Goldman report and companies data Possible Scenarios Sina’s DOB Approves Combination Financial Wise Integration by Shanda Potential Problems Sina’s DOB Denies Combination

41. Sources: iResearch, JP Morgan, Goldman report and companies data Financial Wise Stock Swap Amount for Rest 80% of Sina Shares: $30 x 50 mm x 80% = $120 mm Stock Swap Ratio: 0.95~1.05 Shanda share/Sina share In a long run ration of Sina price to Shanda price is ranged from (0.83-0.91)

42. Sources: iResearch, JP Morgan, Goldman report and companies data Integration Synergy Integration Pros: Sina has weak culture. Easy to build new culture in new entity after acquisition. Chen Tianqiao & Tang Jun Cons: Shanda did not have experience with Media culture before. Benefit from Revenue instead of Cost Diversification 1. Game: Combine synergies of NCSina game with Shanda Game 2. Advertisement 3. Internet Auction 3. IPTV: Content+Ad 4. Mobile Services: Msg.+Game+Others

43. Sources: iResearch, JP Morgan, Goldman report and companies data Problems Short-term Pressure for Shanda How to Deal With eBay Management Experience Shanda Online Game Operator under Pressure of the Society Sina Main Stream Media Control How to Coordinate Together ?

44. Sources: iResearch, JP Morgan, Goldman report and companies data Scenario 1 Be the DOB Possibility: Medium - Shanda persuades Sina’s institute investors to send it into the board. - Key issue: Attractive blueprint for Sina’s business growth. Scenario 2 Be the big shareholders and cooperate with Sina Possibility: Medium - Equity participation. E.g. IPTV, Mobile Value-added Services Etc Scenario 3 Sell Sina’s shares at higher price Possibility: High - Shanda have no enough cash for bidding war. - It will benefit from holding/selling Sina’s shares at a higher price. Scenarios if Sina’s DOB Denies Combination

45. Sources: iResearch, JP Morgan, Goldman report and companies data Contents Industry Overview and Competition AnalysisAcquisitionThe Puzzles in Acquisition What is Next The Impacts on China Internet Industry

46. Sources: iResearch, JP Morgan, Goldman report and companies data A Giant in Portal, Wireless & Gaming A media giant on three platforms, namely PC, mobile device and IPTV, affecting three important sectors – portal, wireless and gaming. 2004 Business Comparison: Sina-Shanda vs. Netease & Sohu

47. Sources: iResearch, JP Morgan, Goldman report and companies data Influences on Internet Businesses & Companies It may trigger more large-scale merger & acquisition in local Internet Industry.

48. Sources: iResearch, JP Morgan, Goldman report and companies data Summary It’s likely that collusion or understanding exists in this case. There will be a real Internet giant in Portal, Wireless and Gaming to compete against those global leaders. It may trigger more large-scale business combination in China Internet industry. Acquisition will become a long march when the event quiets down; Everything is possible before shareholders conference in June.

49. Thank You ! Legend Changed the World