EX-99.(C)(4) 6 d282909dex99c4.htm PRELIMINARY DISCUSSION MATERIALS DATED NOVEMBER 19, 2011 Preliminary Discussion Materials dated November 19, 2011

Exhibit (c)-(4)

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Discussion Material Prepared for

Meeting with the Special Committee of the Board of Directors of Shanda Interactive Entertainment Limited Project World

November 19, 2011

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Notice to Recipient Confidential “Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which is a registered broker-dealer and member of FINRA and SIPC, and, in other jurisdictions, locally registered entities.

Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. These materials have been prepared by one or more subsidiaries of Bank of America Corporation for the client or potential client to whom such materials are directly addressed and delivered (the

“Company”) in connection with an actual or potential mandate or engagement and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with us. These materials are based on information provided by or on behalf of the Company and/or other potential transaction participants, from public sources or otherwise reviewed by us. We assume no responsibility for independent investigation or verification of such information (including, without limitation, data from third party suppliers) and have relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the managements of the Company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. These materials were designed for use by specific persons familiar with the business and affairs of the Company and are being furnished and should be considered only in connection with other information, oral or written, being provided by us in connection herewith. These materials are not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Bank of America Corporation or any of its affiliates to provide or arrange any financing for any transaction or to purchase any security in connection therewith. These materials are for discussion purposes only and are subject to our review and assessment from a legal, compliance, accounting policy and risk perspective, as appropriate, following our discussion with the Company. We assume no obligation to update or otherwise revise these materials. These materials have not been prepared with a view toward public disclosure under applicable securities laws or otherwise, are intended for the benefit and use of the Company, and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without our prior written consent. These materials may not reflect information known to other professionals in other business areas of Bank of America Corporation and its affiliates. Bank of America Corporation and its affiliates (collectively, the “BAC Group”) comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and strategic advisory services and other commercial services and products to a wide range of corporations, governments and individuals, domestically and offshore, from which conflicting interests or duties, or a perception thereof, may arise. In the ordinary course of these activities, parts of the BAC Group at any time may invest on a principal basis or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions, for their own accounts or the accounts of customers, in debt, equity or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, potential counterparties or any other company that may be involved in a transaction. Products and services that may be referenced in the accompanying materials may be provided through one or more affiliates of Bank of America Corporation. We have adopted policies and guidelines designed to preserve the independence of our research analysts. These policies prohibit employees from offering research coverage, a favorable research rating or a specific price target or offering to change a research rating or price target as consideration for or an inducement to obtain business or other compensation. We are required to obtain, verify and record certain information that identifies the Company, which information includes the name and address of the Company and other information that will allow us to identify the Company in accordance, as applicable, with the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) and such other laws, rules and regulations as applicable within and outside the United States. We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply. Copyright 2011 Bank of America Corporation.


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Process Update

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Process Update Summary of Meetings as of November 19, 2011 Date Description Participants Topics of Discussion

Oct 29, 2011 Kick-off Call SC, Weil, BofAML Map out timeline and general process Determine plan of action regarding due diligence, key deliverables and future SC meetings Nov 4, 2011 Meeting between JPM, BofAML Discuss JP Morgan and Buyer Group’s preliminary valuation analysis financial advisors and rationale for their offer price Discuss financing, timeline and Buyer Group’s intentions Discuss protocols for the process going forward Nov 7, 2011 Call with Chairman JH, Weil, BofAML Discuss process update and next steps of Special Review JP Morgan’s valuation analysis Committee Nov 8, 2011 Meeting between Weil, S&S Discuss key issues in the draft merger agreement (circulated by S&S legal advisors on Nov 2, 2011) Nov 8, 2011 Call between BofAML, JPM Discuss key Q&A items for Buyer Group financial advisors Weeks of Oct 31 Ongoing Due Company, BofAML Management presentation and Nov 7, 2011 Diligence Business and financial due diligence Due diligence is ongoing


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Process Update Summary of Meetings as of November 19, 2011 (Cont’d)

Date Description Participants Topics of Discussion Nov 11, 2011 Call with Chairman JH, Weil, BofAML Discuss process update and status of due diligence of Special Committee Nov 13, 2011 Meeting with SC, BofAML, Weil, MC Discuss process update Special Committee Discuss valuation methodologies and preliminary valuation analysis Review key terms of the merger agreement Discuss fiduciary duties under Cayman Islands law and mandate of Special Committee Nov 18, 2011 Call with Chairman JH, Weil, BofAML Discuss process update and status of due diligence of Special Update on valuation analysis Committee


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Market Update

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Market Update Shanda Historical ADS Performance Last Twelve Months ADS Performance Price rebased to Shanda (US$) March 1, 2011 Shanda announces 2010 annual results March 1, 2011 Shanda announces 2010 annual results August 31, 2011 Shanda announces second quarter 2011 results October 17, 2011 Buyer Group offer announced Volume (‘000) Source: Factset as of November 17, 2011 Volume Shanda NASDAQ


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Preliminary Valuation Analysis

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Preliminary Valuation Analysis Transaction Overview Summary of Transaction Value Implied Premiums to Historical Stock Prices (Amounts in US$ millions except per share data) Implied Valuation Offer Price Offer price per ADS $41.35 Price Premium / (US$) (Discount) Total ADS outstanding (mm)(1) 54.6 Implied equity value(1) $2,258 Buyer Group Offer Price $41.35 -Adjustment for net debt: Current (11/17/2011) 39.49 4.9% Debt(2) 219 Unaffected Price (10/14/2011) 33.48 23.5% Cash(3) (1,379) VWAP (Before 10/17/2011) Non-controlling interests 365 1-Week $32.54 27.1% Net Debt / (Cash) (795) 1-Month 32.62 26.8% 3-Month 33.21 24.5% Enterprise value $1,463 6-Month 38.80 6.6% Implied Transaction Multiples(4) Amount Multiple 12-Month 40.35 2.5% 2012E Net Income 95.2 23.7x 2013E Net Income 113.4 19.9x 2012E EBITDA 259.5 5.6x 2013E EBITDA 315.8 4.6x ____________________ Source: Factset, Company SEC filings, Company management (1) Based on fully diluted number of shares. Share count data provided by Company management as of November 7, 2011: 108,335,894 ordinary shares and 18,475,036 options. Options have been treated on an as-converted basis using Treasury Stock Method (2) Includes short term loans (3) Includes cash, cash equivalents, restricted cash, short-term investments and marketable securities. Cash balance pro forma for cash spent on share repurchases since September 30, 2011 (4) Multiples based on Company management projections


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Preliminary Valuation Analysis Public Trading Comparables Comparables for Shanda are drawn from two main Internet categories China Internet platform and gaming companies with large gaming businesses that comprise a significant portion of the overall business Pure play online gaming operators in China Although the comparables have varying growth and margin profiles, all comparables derive a significant majority of their revenue, if not all of their revenue, from China Market Enterprise Share Value Value(1) P/E EV/EBITDA PEG(2) Price (US$ mm) (US$ mm) 2011E 2012E 2013E 2011E 2012E 2013E 2012E 2013E Chinese Internet Platform and Gaming (3) Tencent 153.90 36,557 33,172 22.2x 17.5x 14.0x 15.8x 12.2x 9.7x 0.7x 0.6x Netease 47.58 6,266 4,505 13.1 11.5 9.9 8.5 7.2 6.3 0.8 0.7 Sohu 54.19 2,102 1,580 11.0 9.3 8.1 5.0 4.1 3.4 0.5 0.4 Max 22.2x 17.5x 14.0x 15.8x 12.2x 9.7x 0.8x 0.7x Average 15.4 12.8 10.6 9.7 7.8 6.5 0.7 0.5 Median 13.1 11.5 9.9 8.5 7.2 6.3 0.7 0.6 Min 11.0 9.3 8.1 5.0 4.1 3.4 0.5 0.4 Chinese Gaming Changyou 25.60 1,416 991 6.2x 5.3x 4.8x 3.7x 3.2x 2.8x 0.3x 0.3x Giant Interactive 3.96 946 630 6.4 5.3 4.8 3.5 3.1 2.8 0.4 0.4 Perfect World 12.30 618 239 4.1 3.8 3.4 1.3 1.2 1.1 0.3 0.2 NetDragon 4.15 (3) 290 89 12.8 8.7 6.9 2.2 1.6 1.4 nm nm The9 Limited 4.58 115 (92) nm nm na nm nm na nm nm Max 12.8x 8.7x 6.9x 3.7x 3.2x 2.8x 0.4x 0.4x Average 7.4 5.8 5.0 2.7 2.3 2.0 0.3 0.3 Median 6.3 5.3 4.8 2.9 2.4 2.1 0.3 0.3 Min 4.1 3.8 3.4 1.3 1.2 1.1 0.3 0.2 Shanda Interactive(5) 39.49 2,157 1,362 83.5 22.6 19.0 7.9 5.2 4.3 1.6 1.4 ____________________ Source: Factset, Bloomberg, broker research, latest Company SEC filings. Market data as of November 17, 2011. Trading multiples calculated based on Factset consensus from Wall Street research estimates except for Shanda Note: “na” refers to not available, “nm” refers to not meaningful. Share price for each company displayed in local currency (1) Enterprise Value = Market Capitalization + Total Debt + Minority Interests + Preferred Shares - Cash & Cash Equivalents (2) Based on FactSet long term EPS Growth (3) Share price shown in Hong Kong dollars (4) Balance sheet and projected estimates provided by Company management


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Preliminary Valuation Analysis Summary Historical Financials and Projections (RMB mm) Revenue % Growth Gross Profit % Margin Operating Expenses % of Revenue Operating Income % Margin Net Income % Margin Fiscal Year Ending December 31, 2009A 2010A 2011E 2012E 2013E 2014E 2015E 5,235 5,572 6,968 7,887 9,409 10,942 12,781 46.7% 6.4% 25.0% 13.2% 19.3% 16.3% 16.8% 3,758 3,419 3,998 4,758 5,568 6,375 7,265 71.8% 61.4% 57.4% 60.3% 59.2% 58.3% 56.8% (1,713) (2,568) (3,507) (3,733) (4,247) (4,866) (5,397) 32.7% 46.1% 50.3% 47.3% 45.1% 44.5% 42.2% 2,044 851 492 1,025 1,321 1,509 1,867 39.0% 15.3% 7.1% 13.0% 14.0% 13.8% 14.6% 1,593 614 164 605 721 763 928 30.4% 11.0% 2.4% 7.7% 7.7% 7.0% 7.3% Source: Company filings and management


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Preliminary Valuation Analysis Discounted Cash Flow Amounts in RMB mm except per share figures 2011E 2012E 2013E 2014E 2015E Steady State (1) Consolidated Revenue 6,968 7,887 9,409 10,942 12,781 13,420 Consolidated EBITDA 1,089 1,649 2,007 2,241 2,686 2,810 EBITDA margin 15.6% 20.9% 21.3% 20.5% 21.0% 20.9% Less: Depreciation & Amortization (597) (624) (686) (732) (819) (504) Consolidated EBIT 492 1,025 1,321 1,509 1,867 2,305 Less: Tax (435) (353) (458) (544) (664) (811) Effective Tax Rate (2) 34.4% 34.7% 36.1% 35.6% 35.2% Consolidated NOPAT 56 672 863 965 1,203 1,494 Plus: Depreciation & Amortization 624 686 732 819 504 Less: (Increase) / Decrease in NWC (145) (191) (168) (237) (268) Less: Capital Expenditures (348) (378) (377) (403) (504) Consolidated Free Cash Flow 803 979 1,151 1,383 1,226 Free Cash Flow Attributable to Shanda Shareholders(3) 504 603 681 828 746 % Growth 19.8% 13.0% 21.6% (10.0%) Discounted Cash Flow (Growth Based Terminal Value) A + B = C Discounted PV of Terminal Value as a Discount Cash Flows Terminal Growth Rate Enterprise Value Rate(4) 2012-2015 4.5% 5.0% 5.5% 4.5% 5.0% 5.5% 16.0% 1,776 3,581 3,744 3,923 5,358 5,520 5,699 16.5% 1,757 3,374 3,520 3,680 5,131 5,277 5,437 17.0% 1,738 3,184 3,316 3,461 4,922 5,055 5,199 - D = E F G Discount Net Debt/(Cash)(5) Equity Value Implied Share Price (RMB)(6) Implied ADS Price (US$)(6) Rate(4) Q3 2011 4.5% 5.0% 5.5% 4.5% 5.0% 5.5% 4.5% 5.0% 5.5% 16.0% (6,452) 11,810 11,972 12,151 108.12 109.61 111.24 34.03 34.50 35.01 16.5% (6,452) 11,583 11,729 11,889 106.04 107.38 108.85 33.37 33.80 34.26 17.0% (6,452) 11,374 11,507 11,651 104.13 105.34 106.66 32.77 33.15 33.57 ____________________ Note: Based on Company management projections. Assumes valuation date as of December 31, 2011. DCF uses end of year convention. USD/RMB exchange rate of 6.35 assumed for ADS price calculation (1) Steady state assumptions per Company management guidance include: revenue growth of 5.0% from 2015E, EBITDA margin calculated as average of preceding 4 years, change in net working capital calculated as 2% of revenue, capital expenditures as percentage of revenue calculated as average of preceding 4 years and depreciation & amortization trending towards annual capital expenditures (2) Tax rate based on Company management’s estimation of implied tax rates (3) Calculated by applying the following ratio to consolidated free cash flow: (consolidated net income) / (consolidated net income + minority interest) (4) For detailed discount rate assumptions, please refer to Appendix “Weighted Average Cost of Capital” (5) Net Debt = Shanda’s share of consolidated debt (RMB1,137 mm) – Shanda’s share of consolidated cash and cash equivalents (RMB7,826 mm), as of September 30, 2011; data provided by Company management. Cash balance pro forma for cash spent on share repurchases since September 30, 2011; data provided by Company management (6) Share price calculated based on fully diluted ordinary share count of 109.2 mm. Share count data provided by Company management as of November 7, 2011: 108,335,894 ordinary shares and 18,475,036 options. Options have been treated on an as-converted basis using Treasury Stock Method Strictly Private & Confidential


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Preliminary Valuation Analysis Illustrative Discounted Cash Flow Sensitivity Analysis Value Driver Base Case Changes Considered (1) Impact on DCF Value Assumptions Annually Revenue Growth (2012–2015) EBIT Margin (2012–2015) Capex as % of Revenue (2012–2015) 13.2% – 19.3% –/+ 3.0% 13.0% – 14.6% –/+ 2.0% 3.1% – 4.4% +/– 1.0% Mid-point Price per ADS: US$33.80(2) US$32.92 US$34.72 US$31.73 US$35.86 US$32.59 US$35.00 (0.87) 0.93 (2.07) 2.07 (1.20) 1.20 1.20 ____________________ Note: Based on Company management projections. Assumes valuation date as of December 31, 2011. DCF uses end of year convention. USD/RMB exchange rate of 6.35 assumed for ADS price calculation (1) Base case range represents the low and high in the years from 2012 - 2015 (2) Based on WACC assumption of 16.5% and terminal growth rate of 5.0%. For detailed discount rate assumptions, please refer to Appendix “Weighted Average Cost of Capital”. ADS price calculated based on fully diluted ordinary share count of 109.2mm. Share count data provided by Company management as of November 7, 2011: 108,335,894 ordinary shares and 18,475,036 options. Options have been treated on an as-converted basis using Treasury Stock Method


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Preliminary Valuation Analysis Precedent Going-Private Transaction Premiums In the past 5 years, several US-listed companies have been taken private in comparable going-private transactions The premiums paid over trading price at announcement in the selected precedent transactions have been in the 20%-30% range The Buyer Group’s offer for Shanda represented a 1-day, 1-week and 1-month premium of 23.5%, 27.7% and 16.7%, respectively Selected Completed Going-Private Transactions since January 1, 2006 with US-Listed Targets Date Deal Value (1) Acquiror Initial Final Offer Premium Prior to Announcement Announced Acquiror Target (US$ mm) Ownership (%) 1 Day (%) 1 Week (%) 1 Month (%) Chinese U.S. Listed Companies 25-Mar-11 PAG Asia Capital; Funtalk China Holdings Ltd 443 77.1 17.1 25.7 43.8 Existing Management 7-Mar-11 Bain Capital Partners LLC; China Fire & Security Group Inc 266 59.1 24.0 24.1 34.7 Existing Management 11-Nov-10 Primavera Capital Management Ltd Chemspec International Ltd 297 55.0 28.2 22.2 30.7 8-Apr-10 Hanmax Investment Ltd; Tongjitang Chinese Medicines Co 117 60.2 19.0 20.9 21.6 Shanghai Fosun Pharmaceutical Mean 22.1% 23.2% 32.7% Median 21.5% 23.2% 32.7% Non-Chinese U.S. Listed Companies 23-Feb-11 Enterprise Products Partners LP Duncan Energy Partners LP 2,532 58.5 34.6 34.7 36.5 22-Feb-11 Johnson & Johnson Crucell NV 2,903 95.2 0.4 0.6 1.5 6-Dec-10 Sun Pharmaceutical Industries Ltd Caraco Pharmaceutical Laboratories Ltd 211 75.8 16.7 12.2 13.6 1-Nov-10 CNA Financial Corp CNA Surety Corp 1,219 61.0 37.9 37.7 46.9 26-Apr-10 SembCorp Industries Ltd; Cascal NV 208 92.3 (11.2) (7.4) 0.0 SembCorp Utilities 3-Nov-09 Private Investor (Tilman J Fertitta) Landry’s Restaurants Inc 397 60.4 95.2 85.2 104.3 29-Jul-09 Overseas Shipholding Group Inc OSG America LP 308 77.1 41.4 56.5 51.9 19-May-09 Perdigao SA Sadia SA 1,587 51.0 7.0 3.6 42.8 23-Mar-09 Cox Enterprises Inc Cox Radio Inc 382 78.4 45.5 47.7 (5.1) 2-Dec-08 Icahn Enterprises LP Federal-Mogul Corp 471 75.0 0.0 (9.8) 4.1 31-Jul-08 Existing Management Zones Inc 102 54.0 28.7 (6.7) (10.6) 4-Apr-08 Morguard Corp Revenue Properties Co Ltd 128 72.6 0.9 10.6 4.4 23-Oct-07 Macquarie Infrastructure Partners; Waste Industries USA Inc 536 51.0 33.5 40.9 32.8 Goldman Sachs & Co 17-Jul-07 Alfa Mutual Insurance Co Alfa Corp 1,794 54.8 44.7 44.9 29.8 25-Jun-07 Oplink Communications Inc Optical Communication Products Inc 188 58.1 5.1 4.4 11.5 23-Feb-07 American Financial Group Inc Great American Financial Resources Inc 1,164 80.8 13.0 14.8 12.5 24-Jan-07 American International Group Inc - AIG 21st Century Insurance Group 1,934 60.8 4.8 4.8 5.0 6-Nov-06 Renova Media Enterprises Ltd Moscow CableCom Corp 405 61.7 29.1 25.9 46.3 9-Oct-06 VNU NV NetRatings Inc 828 60.5 44.1 45.0 45.1 17-Mar-06 Management Group (General William Lyon) William Lyon Homes Inc 943 74.5 44.0 50.5 27.0 Mean 25.8% 24.8% 25.0% (2) Median 28.9% 20.3% 20.3% 17-Oct-11 Buyer Group Shanda Interactive Entertainment Ltd. 2,258 69.2% 23.5% 27.7% 16.7% In the past 5 years, comparable going-private transactions have been completed at a premium level of 20%-30% ____________________ Source: Dealogic, Bloomberg Note: Represents 100% acquisitions with “grossed up” deal value (i.e. inclusive of acquiror stake) between US$100 mm and US$3 bn in which the acquiror’s initial stake was above 50% (1) Represents “grossed up” deal value (2) Based on fully diluted ordinary share count of 109.2 mm per Company management


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Preliminary Valuation Analysis Precedent Going-Private Transaction Premiums (Cont’d) 1-Day Premium 1-Week Premium 1-Month Premium >40% 30%-40% 25.0% 12.5% 12.5% 16.7% 10%-20% 20%-30% 29.2% <10% >40% 30%-40% 20%-30% 20%-30% <10% 29.2% 8.3% 20.8% 12.5% 29.2% % of Deals (1) % of Deals (1) >40% 30%-40% 20%-30% 10%-20% <10% 29.2% 16.7% 12.5% 12.5% 29.2% % of Deals (1) Mean: 25.1% Median: 26.1% Buyer Group’s Offer(2): 23.5% Mean: 25.1% Median: 26.1% Buyer Group’s Offer(2): 23.5% Mean: 25.1% Median: 26.1% Buyer Group’s Offer(2): 23.5% Buyer Group’s offer premium is generally in line with average premiums paid in precedent US going-private transactions Source: Dealogic, Bloomberg (1) Based on 24 selected acquisitions since January 2006 with “grossed up” deal value between US$100 mm and US$3 bn involving US-listed companies in which the acquiror’s initial stake was above 50% (2) Based on fully diluted ordinary share count of 109.2 mm per Company management


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Preliminary Valuation Analysis Wall Street Research Perspectives Pre-Announcement of the Buyer Group Offer Pre-Announcement of the Buyer Group Offer Pre-Announcement of the Buyer Group Offer Target Price Broker Date Rating Value (US$) Time Frame Nomura 10/18/11 Neutral $47.00 12 months Roth Capital 10/17/11 Neutral 41.00 NM Oppenheimer 10/17/11 Not Rated NA 12-18 months Morgan Stanley 10/17/11 Equal Weight 35.70(1) 12-18 months Deutsche Bank 10/17/11 Hold 35.10 NA JP Morgan 10/17/11 NA NA NA Average $39.70 Target Price Broker Date Rating Value (US$) Time Frame Nomura 10/18/11 Neutral $47.00 12 months Roth Capital 10/17/11 Neutral 41.00 NM Oppenheimer 10/17/11 Not Rated NA 12-18 months Morgan Stanley 10/17/11 Equal Weight 35.70(1) 12-18 months Deutsche Bank 10/17/11 Hold 35.10 NA JP Morgan 10/17/11 NA NA NA Average $39.70 ____________________ Source: Wall Street equity research (1) Represents price target per base case estimates from Morgan Stanley research


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Appendix

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Appendix Weighted Average Cost of Capital Comparable Companies Tencent Holdings Ltd. Sohu.com Inc. Changyou.com Ltd. Giant interactive Group Inc. Netease.com Inc. Perfect World Co. Ltd. The9 Ltd. NetDragon Websoft Inc. Levered Marginal Total Debt Net Debt Market cap Total Debt to Unlevered Beta (1) Tax Rate (US$ mm) (US$ mm) (US$ mm) Equity Beta (2) 1.12 25.0% 1,204 (3,387) 36,557 3.3% 1.09 1.34 25.0% 286 (522) 2,102 13.6% 1.21 1.16 25.0% 56 (425) 1,416 3.9% 1.13 0.72 25.0% 0 (316) 946 0.0% 0.72 0.95 25.0% 5 (1,760) 6,266 0.1% 0.94 1.23 25.0% 18 (379) 618 2.9% 1.20 1.05 25.0% 1 (208) 115 0.5% 1.05 0.81 25.0% 0 (202) 290 0.0% 0.81 1.05 25.0% 3.0% 1.02 Selected Average Key Macroeconomic Assumptions Historical Risk Free Rate (3) 3.6% Historical Risk Premium (4) 12.8% Estimated Market Return 16.5% Estimated Cost of Debt NA Marginal Tax Rate 25.0% Target Target Levered Cost of Equity (5) Debt / EV Debt / Equity 0.82 0.92 1.02(6) 1.12 1.22 20.0% 25.0% 16.1% 17.6% 19.2% 20.7% 22.2% 10.0% 11.1% 15.0% 16.4% 17.8% 19.2% 20.6% - - 14.1% 15.4% 16.7% 18.0% 19.3% Target WACC (7) Debt / EV Debt / Equity 0.82 0.92 1.02 1.12 1.22 20.0% 25.0% 14.4% 15.6% 16.8% 18.1% 19.3% 10.0% 11.1% 14.3% 15.5% 16.8% 18.0% 19.3% - - 14.1% 15.4% 16.7% 18.0% 19.3% ____________________ Note: Market data as of November 17, 2011 (1) Source: Bloomberg (5-year adjusted beta) (2) Unlevered Beta = (Levered Beta / (1 + ((1 - Tax Rate) * Debt/Equity)). Assumes Beta of debt equals zero (3) Source: Bloomberg China risk free rate, based on China 10-year government bond yield (4) Source: Bloomberg China market risk premium (5) Levered Cost of Equity = (Estimated Future Risk Free Rate + (Levered Beta * Risk Premium)) (6) Based on average of unlevered beta for the comparable set shown (7) WACC = ((Net Debt / Capitalization * (Cost of Debt * (1 - Tax Rate))) + (Equity / Capitalization * Levered Cost of Equity))