Sina Corp, China's largest Internet portal, announced that it has adopted a shareholder rights plan to fight against a possible purchase by top Chinese 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 per cent of Sina's shares. It warned it could raise its stake or buy Sina in the future.

"The board has already agreed to adopted the plan to protect the utmost benefit of our shareholders," Sina Corp said in a statement made on Tuesday, responding to Shanda's possible purchase.

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

There was no immediate response from Shanda Wednesday.

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

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

The plan will "effectively" help the company protect the rights of shareholders at this stage, she said.

"The plan will also help the company win more time to better consider its situation and see whether it will seek the co-operation with Shanda or hammer out a new strategy to counter a possible purchase," she said.

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

"Though the final result will rely on the negotiations between Shanda and Sina, the possibility for the purchase is quite large as Shanda is gaining quite a strength to talk with Sina right 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 about the deal.

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

"However, the possible purchase will not have much influence on other Internet portal companies at this 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 per cent at US$28.42 in Tuesday trading after it announced the plan.

Wei predicted that in the following days the share price is likely to linger between US$27 and US$30.

In another development, Wei did not rule out the possibility that Shanda is also likely to sell its Sina shares, although the possibility is very small.

Sina could be the first Chinese Internet company to adopt a "poison pill" strategy in response to a specific bid. Sohu.com adopted a similar plan in 2001 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 as many of the largest Internet portals have individual shareholders who control a majority or large block of company stock, such as Netease.com Inc, Sohu.com and Tom Online.

In fact, there was a few other cases of attempted unfriendly takeovers in China, 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 is getting increasingly mature, adding all kinds of merger and acquisition measures can be found in the domestic market very soon.

In another development, Stone Group Holdings Ltd refuted a rumour that it would sell its entire holding of 2.50 million shares, or 4.96 per cent, of Sina Corp in the open market.

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

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

Source: China Daily