Why Shanda Games Limited Stock Popped

Is Shanda Games' jump meaningful? Or just another movement?

Jan 27, 2014 at 5:42PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Shanda Games Limited (NASDAQ:GAME) rose more than 15% Monday after  the company announced it has received a non-binding proposal to take the company.private for $6.90 per share.

So what: The offer, which values Shanda Games at $1.9 billion, came from a consortium including Shanda Interactive Entertainment and an affiliate of Primavera Capital. Currently, they collectively own around 76.2% of Shanda Games' outstanding shares.

Now what: Shanda Games' board hasn't made a decision on whether to accept the offer, which represented a 21% premium to Friday's close. Shares closed today at $6.50 per share, reflecting uncertainty surrounding whether the acquisition will go through.

To be sure, even though the company has had trouble growing its top line over the past several years, it's hard to claim shares are overvalued trading around 8 times next year's estimated earnings. But the stock has also more than doubled over the past year -- including a 45% pop over the past 30 days alone -- and closed today at a new 52-week-high of $6.50 per share. In the end, while I'll admit Shanda Games could potentially negotiate its price upward, I wouldn't blame investors for taking profits today.

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Fool contributor Steve Symington and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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