Sina Corp, China's largest internet portal, announced that it has adopted a shareholder rights plan to fight against a possible purchase by top online game operator Shanda.

The plan unveiled on Tuesday (US time), also known as a 'poison pill,' is designed to ward off hostile bidders by flooding the market with shares, making the target company more expensive and difficult to take over.

Shanghai-based Shanda Interactive Entertainment Ltd said late on Friday it had purchased 19.5 percent of Sina's shares. It warned it could raise its stake or buy Sina in the future.

"The board has already agreed to adopt the plan to protect the utmost benefit of our shareholders," Sina said in a statement on Tuesday.

The plan gives shareholders the chance to buy Sina stock at half-price if Shanda buys an additional 0.5 percent or more of Sina.

There was no immediate response from Shanda on Wednesday.

"For Sina, I believe it is a very normal step for a listed company to introduce such a plan to avoid being controlled," said one analyst from a foreign investment bank.

In fact, the 'poison pill' is a tactic widely used by US-listed companies in response to potential takeovers.

The plan should help the company protect the rights of shareholders at this stage, the analyst told China Daily. "It will also help the company win more time to better consider its situation and see whether it will seek cooperation with Shanda or hammer out a new strategy," she said.

Dick Wei, an analyst with JP Morgan Securities, believed that Shanda is aiming to purchase Sina to diversify its growth areas, which will include online gaming, online advertising and wireless messaging.

"Though the final result will rely on negotiations between Shanda and Sina, the possibility of a purchase is quite large as Shanda has gained enough strength to talk with Sina at the moment," he said.

It was reported that Chen Tianqiao, chairman and chief operating officer of Shanda, was flying to Beijing yesterday to negotiate with Sina.

The price as well as the reshuffle of the management team is likely to be one of the major items to be discussed, he said.

"However, the possible purchase will not have much influence on other internet portal companies at the moment such as Netease.com and Sohu.com," Wei said.

He predicted that after the purchase, Shanda is likely to retain the name of Sina as it is a more internationally recognized brand. And Shanda is likely to run an online game channel within Sina's business platforms.

Sina's shares were up 11 percent at US$28.42 on Tuesday after it announced the plan. Wei predicted that in the following days the share price is likely to remain between US$27 and US$30.

In another development, Wei did not rule out the possibility that Shanda could sell its Sina shares, although this would be unlikely.

Sina could be the first Chinese internet company to adopt a 'poison pill' strategy in response to a specific bid. Sohu.com adopted a different plan in 2001, but for similar ends: to avoid predators after its shares tanked during the bursting of the dot-com bubble.

Industry analysts said they did not expect a broader trend of hostile bids to emerge in China's internet sector since many of the largest portals have individual shareholders who control a majority or large block of company stock, such as Netease.com Inc, Sohu.com and Tom Online.

There were some cases of attempted unfriendly takeovers in other sectors; last year rivals SABMiller and Anheuser-Busch got into a battle for Harbin Brewery, with Anheuser-Busch ultimately winning.

The analyst believed that as the Chinese capital market matures, more merger and acquisition measures would be found in the domestic market.

In another development, Stone Group Holdings Ltd refuted a rumor that it would sell its entire holding of 2.5 million shares, or 4.96 percent, in Sina in the open market.

"We will keep the shares," Duan Yongji was quoted as saying by Sina on Wednesday.

It had been reported that the stake was reclassified as a short-term investment following a change in Stone's investment strategy.

(China Daily February 24, 2005)