Taking control of the country's premier internet portal, Sina Corp, has become a priority for the largest Chinese online games operator, Shanda Interactive Entertainment Ltd.

The Shanghai-based company announced on Saturday that it had acquired a stake of almost 20 percent in Sina.

Shanda and its controlling shareholder Skyline Media Ltd had bought up around 9.82 million outstanding ordinary shares of NASDAQ-listed Sina by February 10 through open market purchases.

This means it controls 19.5 percent of Sina's outstanding shares, making it the Beijing-based portal's biggest single shareholder.

The transaction cost Shanda and Skyline Media more than US$230 million, according to Shanda's filing to the US Securities and Exchange Commission on Friday (US Eastern Time).

Following the announcement, Shanda's stocks on NASDAQ fell by 1.1 percent to US$29.68 in after-hours trading on Friday, while Sina's rose by 10.55 percent to US$28.30.

Shanda said in the filing that the move was a strategic investment and that it may conduct discussions with Sina on a business combination transaction.

The company declined to make any further comment on its future plans regarding the transaction.

Shanda has set itself the goal of becoming a digital media empire like Disney, while Sina is the dominant online advertising firm and one of the largest wireless value-added service operators in China, which also plans to develop into a digital entertainment gateway in the future.

However, it will be tough for Shanda to gain full control of Sina.

Sina said in a statement on Saturday night that Shanda's investment will not have any impact on its operations and its shareholders do not need to take any action.

Wang Yan, CEO and president of Sina, also said in a letter to its employees that Shanda has not gained any legal control over the company, and its investment will not have any impact on the board, management, employees, customers or operations.

Lu Weigang, an internet industry analyst in Beijing, believes Shanda will not seek to further boost its stake in Sina immediately, as it is more important to communicate with Sina's board first to get their understanding.

Since Sina's stake-holding structure is fragmented and the previous largest shareholder only had about 10 percent ownership, it will take a great effort for Shanda to convince them of the benefits of a business partnership.

Lu predicts Shanda will not want to make drastic changes to Sina's business practices or management, since it does not have enough experience in operating internet portals and it would be more interested in integrating resources to build its entertainment empire.

Fang Xingdong, an internet industry veteran, was quite optimistic about potential for cooperation.

Analysts believe Shanda made the move at the right time, when the valuation of Sina's stock was low and its shareholders and management are under huge pressure, as Sina suffered from regulatory campaigns on wireless messaging services by the government and mobile operators.

Sina's stocks fell by almost a quarter on February 8 after it warned that revenue from its wireless services might decrease 20-30 percent this quarter, compared to the previous one, in which wireless business contributed almost two thirds of its total.

(China Daily February 21, 2005)