Summary: Shanda announced in a SEC filing after the market close on Feb 18 that it has acquired
19.5% of Sina's shares using cash on hand, the vast majority immediately following Sina's 4Q2004
results release on Feb 8. The transaction itself is earnings accretive - we raise our Shanda 2005 fully
diluted (FD) EPS estimate by 8% to US$1.42 and 2006 by 7% to US$1.60 to reflect Shanda equity
accounting its stake and thus booking 19.5% of Sina's earnings ($13 mn boost), offsetting foregone
interest income ($4 mn reduction). A full acquisition would be earnings dilutive given Shanda is at 23X
our 2005 FD EPS while Sina is at 25X; we view Sina's earnings quality (60% wireless) as lower, though
Shanda might boost Sina's earnings through leveraging its prepaid card network. We assume Shanda
will wait and watch Sina's share price next week, and consider a share swap acquisition at a ratio of not
more than 1:1.We have an IL rating on Shanda and a 12 month target price of $33 based on 21X our
2006 forecast EPS; risks include loss of massive multiplayer game players to rival game World of
Warcraft. We have an IL rating on Sina and a 12 month target price of $26 based on 20X our 2006 fully
diluted EPS; risks include over-reliance on wireless and specifically SMS/MMS products.