Special Committee Materials prepared by Morgan Stanley Asia Limited

EX-99.(C)(4) 4 d699526dex99c4.htm SPECIAL COMMITTEE MATERIALS PREPARED BY MORGAN STANLEY ASIA LIMITED Special Committee Materials prepared by Morgan Stanley Asia Limited

Exhibit (c)-(4)

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Project Goliath

Special Committee Materials

March 16, 2014

Morgan Stanley

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Project Goliath

Disclaimer

This document has been prepared by Morgan Stanley Asia Limited (“Morgan Stanley”) pursuant to the terms of a letter of engagement and a letter of indemnification with the independent special committee of the Board of Directors (the “Client”) of Giant Interactive Group Inc. (the “Company”) dated as of December 3, 2013.

This document has been prepared for the Client only in the context of the Transaction (as defined below) and, together with any oral or other supplemental information provided in connection with this document (collectively, “materials”), must be held by the Client and its directors, officers, employees, representatives and agents in strict confidence. This document and any materials must not be photocopied or reproduced in any electronic, physical or other form and must not be communicated, disclosed or distributed to any other person in whole or in part at any time except with Morgan Stanley’s prior written consent.

The purpose of this document is to provide the Client with an explanation of the basis upon which Morgan Stanley is issuing a financial opinion letter (the “Opinion”) in relation to the proposal by the Company’s Chairman, being Mr. Yuzhu Shi (and certain of his affiliated entities), an affiliate of Baring Private Equity Asia and Hony Capital (collectively, the “Consortium”) to acquire all of the outstanding ordinary shares, including ordinary shares represented by American Depositary Shares, of the Company for US$12.00 per share or ADS (the “Transaction”). This document should be read in conjunction with and is subject to the terms of the Opinion. This document supersedes any previous documents or presentations delivered by Morgan Stanley to the Client in connection with the Transaction.

In preparing this document, Morgan Stanley has: (i) used information obtained from the Company and public sources; (ii) assumed and relied upon, without independent verification, the accuracy and completeness of the information supplied or otherwise made available to it for the purposes of this document; (iii) assumed that the financial projections and other financial data relating to the Company have been reasonably and properly prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of the Company as at the date of this document; (iv) not conducted any independent valuation or appraisal of the assets or liabilities of any company involved in any proposed transaction; and (v) not been provided with any such valuation or appraisal, upon which we have relied without independent valuation.

Neither Morgan Stanley, its affiliates nor any of their respective directors, officers, employees or agents (the “Morgan Stanley Group”) gives any representation or warranty, express or implied, as to: (i) the achievement or reasonableness of future projections, management targets, estimates, prospects or returns contained in this document, if any; or (ii) the accuracy or completeness of any information contained in this document, any oral information provided in connection therewith or any data that either generates. Furthermore, and without prejudice to liability for fraud, no member of the Morgan Stanley Group accepts or will accept any liability, responsibility or obligation (whether in contract, tort or otherwise) in relation to these matters.

This document is not a financial opinion or recommendation by any member of the Morgan Stanley Group.

For the avoidance of doubt, no member of the Morgan Stanley Group owes any fiduciary duties to the Client, the Company or any other person whether in respect of this document, the Opinion, the Transaction or otherwise. The only duties Morgan Stanley owes to the Client are those set forth in, and subject to the other provisions of, the engagement letter and indemnity entered into between Morgan Stanley and the Client in connection with the Transaction.

Any views contained in this document are based on financial, economic, market and other conditions prevailing at the date hereof and Morgan Stanley shall be under no obligation to update this document or any materials in the light of changes to such conditions or otherwise.

This document and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies, and do not constitute legal, regulatory, accounting or tax advice to the Client. We recommend that the Client seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this document. This document is not a research report and was not prepared by the research department of the Morgan Stanley Group.

Notwithstanding anything herein to the contrary, the Client, the Company and their directors, officers, employees, representatives and other agents may disclose to any and all persons, without limitation of any kind from the commencement of discussions, the U.S. federal and state income tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided relating to the tax treatment and tax structure. For this purpose, “tax structure” is limited to facts relevant to the U.S. federal and state income tax treatment of the Transaction and does not include information relating to the identity of the parties or their affiliates, agents or advisors.

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Valuation Methodology

In assessing the Final Price, we have considered the following:

– Historical trading ranges

– Range of broker target prices

– Comparable companies analysis

– Precedent transactions analysis

– Discounted cash flow (“DCF”) analysis

– Leveraged buyout (“LBO”) analysis

Introduction

Transaction Overview

Mr. Yuzhu Shi (“Chairman Shi”), certain of Chairman Shi’s affiliated entities, and an affiliate of Baring Private Equity Asia (“Baring”) submitted a preliminary take-private offer (the “Indicative Offer”) on November 25, 2013 to the Board of Directors of Giant Interactive Group Inc. (“Goliath” or the “Company”). The Indicative Offer is for US$11.75 per ADS (the “Indicative Price”)

We understand that Hony Capital has subsequently entered into the consortium with Chairman Shi and Baring (collectively, the “Consortium”) and negotiations with the Special Committee have resulted in an increase to the Indicative Price to US$12.00 per ADS (the “Final Price”)

– On a 100% fully-diluted equity basis, the Final Offer values the Company at approximately US$3.01Bn

– Premium of 25.0%, 31.6%, 33.6% and 34.4% to the volume-weighted average price during the last 5, 30, 60 trading days and last 3-months before the November 25 announcement

Members of the Consortium have signed a consortium agreement (the “Consortium Agreement”) and have agreed to work with each other exclusively for nine months until August 25, 2014. The consortium agreement obligates each member of the Consortium to:

– vote for the proposed transaction and not take any action inconsistent with it

– not transfer any of its or his shares in the Company unless as otherwise permitted under the Consortium Agreement

– vote against any competing proposal or matter that would facilitate a competing proposal

The Consortium collectively owns c.47.2% of the Company on a fully-diluted basis

– As part of the transaction, Chairman Shi, who currently holds c.42.5%, intends to monetize c.18.7% of his holdings and roll-over his remaining stake of c.23.8% as part of the take-private transaction

We understand that the Consortium intends to finance the transaction with a combination of debt and equity capital

– Equity commitment of up to $950mm from Baring and Hony Capital

– Debt commitment in the form of a $850mm term loan

– Available cash and vendor note provided to Chairman Shi amounting to $676mm

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Goliath’s share price dropped in September 2011 primarily due to the payment of a special dividend of US$708MM

Chinese Online Gaming Peer Share Price Performance

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

Share Price Performance

Last Three Years

200

NetEase: 62.3%

150

Goliath: 42.5%

100

Changyou: (17.8%)

Shanda: (33.9%)

50 Perfect World: (40.8%)

Nov-10 Feb-11 May-11 Aug-11 Dec-11 Mar-12 Jun-12 Oct-12 Jan-13 Apr-13 Aug-13 Nov-13

Goliath NetEase Changyou Shanda Perfect World

Source CapIQ

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Goliath ADSs have traded between US$5.09 and US$10.13 in the last 12 months prior to the Indicative Offer announcement

– Goliath has not traded above the Indicative Price or Final Price since June 30, 2008

Goliath Trading Volume Analysis

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

ADS Price Trading Range

US$

20 19.20

13.46

11 10.13

10.13 10.13 10.13 10.65

9.39

9.05 9.30

9.16 9.21

8.46

8.19 8.50 9.06 9.08

8.02 8.26 8.50 8.77

8.17 8.92 8.45

6.48 7.71 8.10 8.11 7.92

7.88 8.63

7.55 7.96 7.55 8.24 7.71

6.39 6.52 8.43 7.39

7.45 7.34

6.32 7.82 7.34 6.93

7.25 6.48 6.48

6.28 7.71 6.30 6.16

6.93 6.51

6.23 5.15

6.18 5.41 5.41

6.04 5.09

2 3.15

1Q13 2Q13 3Q13 YTD2013 L1M LTM Since IPO

Total

Volume

54 87.1 62 258 38 280 1,320

(MM ADS)

% TSO (1) 22 36 26 108 16 117 551

25% of Total Volume 50% of Total Volume 75% of Total Volume 100% of Total Volume

Source CapIQ

Note

1. Based on 239.6MM ordinary shares outstanding as of October 31, 2013 5

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Goliath’s P/E dropped in

September 2011 primarily due to the payment of a special dividend of US$708MM

Cash has at times represented a significant portion of the market value

Premium of Final Price

L1M Adjusted NTM P/E 20%

LTM Adjusted NTM P/E 43%

L1M Adjusted NTM

17%

Ex-Cash P/E

LTM Adjusted NTM

40%

Ex-Cash P/E

Historical Multiple Analysis

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

Historical NTM Adjusted P/E (1)

Last 3 Years

Final Price: 11.6x (2)

12 Since IPO Avg.:11.0x

Pre-Offer: 9.8x (2)

L1M Avg.: 9.7x

8 LTM Avg.: 8.1x

Nov-10 Apr-11 Aug-11 Jan-12 May-12 Oct-12 Feb-13 Jul-13 Nov-13

Source CapIQ

Historical Ex-Cash NTM Adjusted P/E (1)

Last 3 Years

Final Price: 8.3x (2)(3)

9 (2)(4)

Pre-Offer: 7.3x

L1M Avg.: 7.1x

6 Since IPO Avg.: 6.7x

LTM

Avg.: 6.0x

Nov-10 Apr-11 Aug-11 Jan-12 May-12 Oct-12 Feb-13 Jul-13 Nov-13

Sources Company Filings, CapIQ

Notes

1. Consensus estimates from brokers as aggregated by CapIQ

2. Based on management estimates for 2014E EPS

3. Based on balance sheet as of December 31, 2013 and adjusted for Alibaba stake sale of US$199.1MM

4. Based on balance sheet as of September 30, 2013

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Premium of Final Price

L1M Adjusted NTM AV /

26%

EBITDA

LTM Adjusted NTM AV /

46%

EBITDA

Historical Multiple Analysis

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

Historical NTM Adjusted AV / EBITDA (1)(3)

Since IPO

8 Final Price:

8.0x (2)(4)

Pre-Offer:

7.1x (2)(5)

L1M Avg.:

6.4x

Since IPO

6 Avg.: 6.2x

LTM Avg.:

5.5x

Nov-10 Apr-11 Aug-11 Jan-12 May-12 Oct-12 Feb-13 Jul-13 Nov-13

Sources Company Filings, CapIQ

Notes

1. Consensus estimates from brokers as aggregated by CapIQ

2. Based on management estimates for 2014E adjusted EBITDA

3. AV between September 12, 2011 and October 31, 2011 adjusted for US$708MM special dividend

4. Based on balance sheet as of December 31, 2013 and adjusted for Alibaba stake sale of US$199.1MM 7

5. Based on balance sheet as of September 30, 2013

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Goliath’s P/E dropped in

September 2011 primarily due

to the payment of a special

dividend of US$708MM

Cash has at times represented a significant portion of the

market value

Goliath Historical Trading Multiples vs. Select Peers

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

Historical NTM Adjusted P/E (1)

Last Three Years

Perfect World:

11.6x

NetEase:

11.5x

Goliath:

9.8x (2)

Changyou:

6 6.2x

Shanda:

4.7x

Nov-10 Mar-11 Jun-11 Oct-11 Feb-12 May-12 Sep-12 Dec-12 Apr-13 Aug-13 Nov-13

Goliath NetEase Changyou Perfect World Shanda

Source CapIQ

Notes

1. Consensus estimates from brokers as aggregated by CapIQ

2. Based on management estimates for 2014E EPS 8

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Goliath Historical Trading Multiples vs. Select Peers

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

Historical NTM Adjusted AV / EBITDA (1)(2)

Last Three Years

Goliath:

7.1x (3)

NetEase:

6.8x

Perfect World:

5.7x

Shanda:

5.0x (4)

3 Changyou:

3.3x

Nov-10 Apr-11 Aug-11 Jan-12 May-12 Oct-12 Feb-13 Jul-13 Nov-13

Goliath NetEase Changyou Perfect World Shanda

Sources CapIQ, Company Filings

Notes

1. Consensus estimates from brokers as aggregated by CapIQ

2. Goliath’s AV between September 12, 2011 and October 31, 2011 adjusted for special dividend of US$708MM

3. Based on balance sheet as of September 30, 2013 and management estimates for 2014E adjusted EBITDA

4. Shanda Games’s net debt after July 28, 2013 includes US$811.5MM in outstanding payment to the parent, Shanda Interactive, for the acquisition of the platform-related business 9

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Goliath has traded at a

significantly lower level than

the Final Price in the twelve

months prior to Indicative Offer

announcement

– L1M to LTM VWAP within

range of ~US$7.5–9.1 per

ADS

With the share price run-up

prior to announcement, the

Final Offer still represents an

18.5% premium to the pre-

announcement price

Summary Share Price

Share Premium of Premium of

Price Offer Price Final Price

Pre-announcement 10.13 16.0% 18.5%

L1M VWAP 9.10 29.1% 31.8%

L3M VWAP 8.93 31.6% 34.4%

L6M VWAP 8.37 40.4% 43.4%

LTM VWAP 7.58 54.9% 58.2%

Source CapIQ

Goliath Historical ADS Price Performance

Up to November 22, 2013 (1 Trading Day Prior to the Indicative Offer Announcement)

LTM Price Performance

US$ Nov-13-2012 Feb-26-2013 May-7-2013 Jun-5-2013 Jul-5-2013 Aug-22-2013 Sep-16-2013

Announced Announced Announced Announced and Ntreev Soft Signed Mike Announced

3Q13 results 4Q12 and full 1Q13 results priced follow-on enters into Tyson as an resignation of Lu

15.00

(revenue of year 2012 results (revenue of offering of 11MM cooperation deal ambassador for Zhang from the

US$86MM vs. (4Q12 revenue US$92MM vs. ADSs for joint World of Xianxia board

consensus of of US$92MM vs. consensus of development of

US$85MM) consensus of US$92MM) mobile games

US$91MM)

Final Price:

US$12.00

10.00 US$10.13

5.00

Apr-9-2013 Apr-18-2013 Jun-17-2013 Aug-6-2013 Sep-6-2013 Nov-6-2013

Announced Announced new Announced Announced 2Q13 World of Xianxia Announced 3Q13

resignation of Mr. CEO Wei Liu and investment in mobile results (revenue of began public testing results (revenue of

Yuzhu Shi as CEO President Xuefeng game developer US$96MM vs. US$96MM vs.

Ji Dijiang Network consensus of consensus of

US$96MM) US$97MM)

0.00

Nov-12 Jan-13 Feb-13 Mar-13 May-13 Jun-13 Jul-13 Sep-13 Oct-13 Nov-13

Sources Company Announcements, CapIQ

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Final Price is ~29% higher than

consensus target price

Broker target prices remain

unchanged post the Indicative Offer announcement and are

in the range of US$9.00-

US$9.60 (2)

Research Recommendation

Summary

Hold

18%

Buy

82%

Analyst Targets & Commentary

Selected Summary Research Estimates (1)(2)

US$MM, except for target price and EPS

Date Rating TP Revenue Adjusted EBIT Adjusted EBITDA Adjusted Net Income Adjusted EPS

2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E

Barclays 1/9/2014 Buy 9.20 387 483 570 246 320 367 263 339 391 235 289 325 0.95 1.15 1.28

Oppenheimer 11/26/2013 N/A N/A 384 425 N/A 243 264 N/A 273 302 N/A 224 237 N/A 0.94 0.95 N/A

Morgan Stanley 11/25/2013 Buy 9.60 385 435 469 244 284 306 252 291 314 238 258 277 0.98 1.04 1.11

CICC 11/8/2013 Buy 9.00 385 449 N/A 235 272 N/A N/A N/A N/A 240 276 N/A 0.97 1.12 N/A

Macquarie 11/7/2013 Buy 9.40 385 440 490 245 279 304 N/A N/A N/A 238 256 273 0.96 1.02 1.07

Median 9.30 385 440 490 244 279 306 263 302 352 238 258 277 0.96 1.04 1.11

Sources Broker Research, CapIQ, Bloomberg

Positives

“Goliath owns a healthy game pipeline, including six games in operation, as well

as 3+ MMORPGs, 2+ web games and 2+ mobile games, which should continue to

fuel its growth... We believe the gamer community and in-game economics for

Goliath’s flagship game, ZT Online 2, remain healthy..Goliath expects World of

Xianxia to be its next key growth engine, following the success of ZT Online 2,

and it plans to release the first expansion pack for the game in November 2013.

- Morgan Stanley, November 7, 2013

“We see the potential for a top-line reacceleration 2Q14 given the meaningful

monetization of a few web and mobile games as well as the stronger growth

prospects for the next two years considering the company’s enriched MMO

pipeline.”

- Barclays, January 9, 2014

“Goliath continues to execute on its strategy to try diversifying away from the

maturing PC MMO market into mobile games and webgames. The company has a

steady cash flow from its MMO game portfolio, which we believe strength in ZT2

and contribution from XianXia have helped to offset a decline in ZT Original in the

quarter. It plans to focus on the developer side as well in the mobile game market,

with a mix of hardcore and casual games.”

- Bank of America Merrill Lynch, November 7, 2013

“We believe the performance of its existing hit games, ZT series and ZT2, is

largely stable as a mix while the company is lining up for a more busy launch

schedule in 2014, including a dozen mobile games, ZT3 (new version of ZT

series), a couple of licensing games including CangTian 2 from Korea and a

shooting game.” - Bank of America Merrill Lynch, November 25, 2013

Concerns

“Although we believe that Goliath may potentially sacrifice part of its top-line

growth to drive stable earnings as well as cash dividends, we believe this would

be attractive to risk-averse investors preferring to have China online game

exposure with stable cash return.”

- Barclays, November 7, 2013

“Since Goliath will launch a licensed MMO game Cang Tian 2 in 2014, gross

margin will likely go down by 2-3%, in our view.”

-Macquarie, November 7, 2013

Commentary on Indicative Offer

“This represents a 16% premium over the last trading price (vs. 15% for Focus

Media, 24% for Shanda Interactive, 33% for Tom Online). The proposed price

implies 11.7x 2014e P/E (10.3x ex-cash)...

- Morgan Stanley, November 25, 2013

“Goliath’s implied takeout valuation compares favorably to its US-listed Chinese

online gaming peers, which are trading at an average 2014E P/E multiple

of 8.5x and EV/EBITDA multiple of 4.5x. We also note that recent Chinese MBOs

have a takeout premium range of 15-70% (an average of 31% and a median of 24%).

Source Broker Research —Oppenheimer, November 26, 2013

Notes

1. Only include reports that were published post the 3Q 2013 earnings release on November 6, 2013 and those that have adjusted estimates for share-based compensation 11

2. Estimates are converted from RMB to USD at an exchange rate of 6.1200 based on management guidance

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Revenue

Management projects revenue to undergo relatively higher growth in 2014 and 2015 due to the expected licensed games in the pipeline as well as anticipated contribution from webgames and mobile games

Licensed games expected to contribute 8.6% and 17.2% of revenue in 2014 and 2015, respectively, an increase over the 2010-2012 average of 2.9%

Gross Profit The increasing contribution from licensed games leads to increases in revenue share with companies from whom Goliath licenses games; hence, lower gross margins beyond 2014

EBITDA

Operating expenses projected to remain relatively constant as a % of total sales going forward

Growth in R&D expenses in line with growth in labor costs

Net Income

Management expects certain tax benefits to cease from 2014 onwards

Goliath Summary Financial Projections

Revenue Gross Profit (2)

US$MM US$MM Margin (%)

2,000 60 1,250 100

1,023

1,000 947 92

877

1,500 45

1,261 812

1,081 1,167 725

1,001 750 647 84

1,000 894 30 498 578

712 798

614 382 412

500 76

460 490 380

340

389 440 300

500 285 346 15 244

250 172 68

202

0 0 0 60 CAGR: 24.4% CAGR: 13.4% CAGR:25.5% CAGR: 13.1%

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Growth 41.0% 21.5% 12.5% 18.2% 33.5% 16.0% 12.0% 12.0% 12.0% 8.0% 8.0% 8.0% Growth 42.0% 23.0% 13.3% n.a. 30.4% 16.0% 12.0% 12.0% 12.0% 8.0% 8.0% 8.0%

Difference 4.5% 25.3% Difference 0.1% 17.9%

Historical Select Broker Consensus (1) Historical Select Broker Consensus (1)

Management Projections Growth Management Projections Margin

Sources Management Projections, Broker Research Sources Management Projections, Broker Research

Adjusted EBITDA (3) Adjusted Net Income (3)

US$MM Margin (%) US$MM Margin (%)

1,000 100 750 80

800 762 555 601

706 85 512

654

472

606 500 420 60

542

600 484 374

432 302 333

373 70

258

352 277

302 254

400 285 213 255

264 250 40

241

189 144

55 118

200 121

0 40 0 20

CAGR: 29.9% CAGR: 13.1% CAGR: 29.1% CAGR: 11.3%

2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Growth 56.7% 27.7% 9.6% 8.3% 30.6% 15.9% 12.0% 11.9% 11.8% 7.9% 7.9% 7.9% Growth 22.6% 47.6% 19.0% 0.7% 18.4% 10.1% 12.4% 12.4% 12.3% 8.4% 8.4% 8.4%

Difference (5.4%) 6.1% Difference (1.0%) 9.2%

Historical Select Broker Consensus (1) Historical Select Broker Consensus (1)

Management Projections Margin Management Projections Margin

Sources Management Projections, Broker Research Sources Management Projections, Broker Research

Notes

1. Based on broker reports that were published post the 3Q 2013 earnings release on November 6, 2013 and those that have adjusted estimates for share-based compensation

2. Historical figures are GAAP and projections are non-GAAP; non-GAAP figures are adjusted for share-based compensation 12

3. Adjusted for share-based compensation, impairment relating to 51.com in 2012 and accrued withholding tax in 2013

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Implied Goliath per ADS Value (1)(2)(3)

Historical Trading Range

One Month Prior to Indicative Offer Announcement

Three Months Prior to Indicative Offer Announcement

Six Months Prior to Indicative Offer Announcement

Twelve Months Prior to Indicative Offer Announcement

Broker Target Price

Undiscounted Broker Estimates (Prior to Indicative Offer Announcement)

Comparable Companies

2013A Adjusted P/E (7.0–13.0x)

2014E Adjusted P/E (6.5–12.0x)

2015E Adjusted P/E (6.0-11.0x)

2013A Adjusted AV / EBITDA (5.0–8.5x) (5)

2014E Adjusted AV / EBITDA (4.5–7.5x) (5)

2015E Adjusted AV / EBITDA (4.0-6.5x) (5)

Precedent Transactions

LTM Adjusted P/E (8–17x) (6)

NTM Adjusted P/E (7–16x)

LTM Adjusted AV / EBITDA (7–9x) (5)(6)

NTM Adjusted AV / EBITDA (6–8x) (5)

Premium to L3M VWAP for Gaming Precedents (20–30%)

Premium to L3M VWAP for U.S.–listed Chinese Companies (30–35%)

DCF (5)

Management Projections, 12.5–14.5% WACC, 1–3% PGR

Management Projections and Management WACC Assumption, 24.0–26.0% WACC,

1–3% PGR – ILLUSTRATIVE PURPOSES ONLY

Hypothetical Leveraged Buyout (5)

25–35% Target IRR, $850MM Acquisition Debt, 7.0–9.0x 2019 Adjusted AV /

EBITDA Exit

Goliath Valuation Summary

Based on Management Projections

60-Day 30-Day Final Offer:

VWAP (4) VWAP (4) $12.00

$8.98 $9.10

$8.24 $10.13

$7.42 $10.13

$7.00 $10.13

$5.09 $10.13

$8.10 $10.40

$7.07 $13.13

$6.61 $12.20

$7.22 $13.24

$8.20 $11.91

$8.02 $11.43

$8.85 $12.56

$8.08 $17.17

$7.12 $16.27

$10.32 $12.43

$9.73 $12.00

$10.72 $11.61

$11.61 $12.06

$15.74 $19.88

$9.38 $10.17

$9.82 $13.41

$0 $5 $10 $15 $20 $25

Notes

1. Accounts for stock options and restricted stock units (RSUs) using treasury method

2. All figures are based on management projections unless otherwise specified

3. EBITDA and EPS are adjusted for share-based compensation, impairment relating to 51.com in 2012 and accrued withholding tax in 2013

4. Prior to Indicative Offer date of November 25, 2013

5. Balance sheet as of December 31, 2013 adjusted for Alibaba stake sale of US$199.1MM

6. LTM financials as of December 31, 2013

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Comparables Analysis

As of March 14, 2014

Trading Statistics of Selected Comparable Companies

(US$MM, except share price and ratios)

Last Close

Price Trading Market Aggregate

AV / Sales (2) Adjusted AV / EBITDA (2) Adjusted P/E (2)

Company 3/14/2014 Currency Value (1) Value 2013A (3) 2014E 2015E 2013A (3) 2014E 2015E 2013A (3) 2014E 2015E

Goliath (pre-announcement) - Management Case (4)

10.13 USD 2,544 2,033 5.2x 4.4x 3.3x 7.6x 7.1x 5.5x 9.9x 9.8x 8.3x

Goliath (at Final Price) - Management Case (5)

12.00 USD 3,014 2,294 5.9x 5.0x 3.7x 8.6x 8.0x 6.2x 11.7x 11.6x 9.8x

Primary China Online Gaming Peers

NetEase 65.10 USD 8,480 5,136 3.3x 2.9x 2.6x 6.6x 6.1x 5.3x 10.8x 10.3x 9.0x

Changyou 27.83 USD 1,477 928 1.3x 1.2x 1.1x 2.7x 9.3x 4.0x 5.5x 32.2x 8.8x

NetDragon (7) 16.02 HKD 1,095 869 N.A. 5.0x 4.3x N.A. 11.6x 8.4x N.A. 15.2x 12.5x

Perfect World 22.29 USD 1,125 707 1.4x 1.2x 1.0x 7.3x 5.9x 4.7x 14.5x 9.7x 7.6x

Forgame 53.20 HKD 899 682 3.3x 2.4x 1.9x 10.8x 6.8x 5.1x 12.9x 12.0x 9.2x

Mean: 2.3x 2.6x 2.2x 6.8x 7.9x 5.5x 10.9x 15.9x 9.4x

Median: 2.4x 2.4x 1.9x 6.9x 6.8x 5.1x 11.8x 12.0x 9.0x

Shanda Games (pre-announcement) (6)(8)

5.65 USD 1,542 1,609 2.2x 2.1x 2.0x 5.6x 5.2x 4.9x 7.0x 6.6x 6.3x

Shanda Games (6)

6.55 USD 1,796 1,862 2.6x 2.4x 2.3x 6.5x 6.0x 5.7x 8.2x 7.6x 7.3x

Sources Goliath Management Projections, Company Filings, Broker Research, CapIQ

Notes

1. Fully-diluted total shares outstanding based on treasury stock method for in-the-money options as disclosed in latest filing

2. Revenue and EBITDA estimates based on Thomson broker consensus; EPS are adjusted from consensus GAAP EPS based on broker estimates of share-based compensation

3. Goliath, NetEase and Changyou multiples based on 2013A results; Shanda Games, NetDragon, Perfect World and Forgame multiples based on consensus estimates

4. As of November 22, 2013, the last trading day prior to the Indicative Offer announcement; based on Goliath’s balance sheet as of September 30, 2013

5. Based on Goliath’s balance sheet as of December 31, 2013 and adjusted for Alibaba stake sale of US$199.1MM

6. Shanda Games’s net debt includes US$444.1MM in outstanding payment, as of September 30, 2013, to Shanda Interactive for the acquisitions of the platform-related business

7. NetDragon’s cash is adjusted for US$1.09Bn cash consideration from the sale of its majority stake in 91 Wireless to Baidu and US$515MM special dividend announced on October 29, 2013; 2013E

multiples are N/A given consensus estimates include consolidated results from 91 Wireless for 9M 2013; 2014E and 2015E consensus estimates do not include 91 Wireless

8. As of January 24, 2014, the last trading day before Shanda Games received a preliminary non-binding take-private proposal from Shanda Interactive and Primavera

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Precedent Online Gaming Transactions

Precedent Transactions

US$MM

Non-GAAP AV/EBITDA(1)(2) Non-GAAP P/E(1)(2) Price Premium / (Discount)

Date Equity Agg % 1 Month 3 Month 1 Day 52 Week

Announced Target / Acquiror Value(1) Value(1) Acquired LTM(3) NTM(4) LTM(3) NTM(4) VWAP VWAP Prior High

01/27/14 Shanda Games / Shanda Interactive and Primavera (5) 1,894 1,962 (6) 23.8% (7) 6.0x 5.6x 8.4x 7.7x 38.2% 52.3% 22.1% 7.5%

07/29/13 Shanda Interactive’s Platform - Related Affiliates / Shanda Games 812 812 (8) 100.0% N.A. N.A. N.A. 9.3x (9) N.A. N.A. N.A. N.A.

07/25/13 Activision / Investor Consortium 15,664 11,899 24.9% 6.0x 8.9x 10.5x 17.3x (8.4%) (7.8%) (11.6%) (15.6%)

10/17/11 Shanda Interactive / Chairman 2,396 1,542 31.6% (7) 8.2x 7.9x 30.9x 32.5x 26.8% 24.5% 23.5% (23.7%)

12/02/07 Vivendi Games / Activision 8,121 8,121 (8) 100.0% N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A.

Mean 6.8x 7.5x 16.6x 16.7x 18.9% 23.0% 11.3% (10.6%)

Median 6.0x 7.9x 10.5x 13.3x 26.8% 24.5% 22.1% (15.6%)

Sources Company Filings, News Release, CapIQ

Notes

1. Equity value and aggregate value of the target as of announcement date. Data as disclosed in the deal announcement or calculated based on the latest financials disclosed prior to the announcement

2. EBITDA and EPS are adjusted for share-based compensation

3. Based on the latest available LTM disclosure prior to the announcement

4. Activision and Shanda Interactive’s NTM estimates based on Thomson consensus estimates

5. Shanda Games / Shanda Interactive and Primavera transaction is a preliminary, non-binding proposal

6. Shanda Games’s net debt includes US$444.1MM in outstanding payment to Shanda Interactive for the acquisitions of the platform-related business

7. % Acquired indicates the outstanding shares that were not owned by the acquiror prior to the take-private announcement

8. Assumes aggregate value equal to market value given no public disclosure on net cash

9. Calculated based on equity value over 2013E projected GAAP net income as disclosed in Shanda Games’s conference call and assumes no share-based compensation

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Precedent Acquisitions of US-Listed Chinese Companies

Selected Precedent Acquisitions of US-listed Chinese Companies (1)

Initial Offer Initial Offer Premium To Final Offer Final Offer Premium To

Company Price per 1M 3M Price per 1M 3M

(Incorporation) Industry Ann. Date Shares / ADS VWAP (3) VWAP (3) Shares / ADS VWAP (3) VWAP (3) Deal Status

Harbin Electric Machinery 11-Oct-10 $24.00 / share 35.8% 35.1% $24.00 / share 35.8% 35.1% • Completed on November 3, 2011

(Nevada)

Fushi Copperweld Machinery 3-Nov-10 $11.50 / share 20.9% 31.2% $9.50 / share (0.1%) 8.4% • Completed on December 27, 2012

(Nevada)

Chemspec Chemical 11-Nov-10 $8.00 / ADS 24.0% 24.9% $8.10 / ADS 25.5% 26.4% • Completed on August 15, 2011

(Cayman)

China Security & Surveillance Security 28-Jan-11 $6.50 / share 30.0% 25.9% $6.50 / share 30.0% 25.9% • Completed on September 14, 2011

(Delaware)

China Fire & Security Fire equipment 7-Mar-11 $9.00 / share 53.3% 39.2% $9.00 / share 53.3% 39.2% • Completed on November 4, 2011

(Florida)

Funtalk Mobile 25-Mar-11 $7.10 / share 31.6% 28.8% $7.20 / share 33.5% 30.6% • Completed on August 22, 2011

(Cayman) technology

Shanda Interactive Internet 17-Oct-11 $41.35 / ADS 26.6% 24.5% $41.35 / ADS 26.6% 24.5% • Completed on February 14, 2012

(Cayman)

CRIC Internet 28-Oct-11 $6.62 / ADS (4) 39.1% 20.4% $4.48 / ADS (5.9%) (18.5%) • Completed on April 24, 2012

(Cayman)

AsiaInfo-Linkage Software 20-Jan-12 $12.00 / share 61.7% 39.6% $12.00 / share 61.7% 39.6% • Signed definitive agreement on May 13, 2013

(Delaware)

Zhongpin Food 27-Mar-12 $13.50 / share 48.8% 39.0% $13.50 / share 48.8% 39.0% • Completed on June 27, 2013

(Delaware)

Focus Media Media 13-Aug-12 $27.00 / ADS 37.7% 31.1% $27.50 / ADS 40.3% 33.5% • Completed on May 23, 2013

(Cayman)

3SBio Pharma 12-Sep-12 $15.00 / ADS 30.2% 25.3% $16.70 / ADS 45.0% 39.5% • Completed on May 30, 2013

(Cayman)

7 Days Hospitality 26-Sep-12 $12.70 / ADS 34.5% 33.7% $13.80 / ADS 46.2% 45.2% • Completed on July 5, 2013

(Cayman)

Simcere Software 11-Mar-13 $9.56 / ADS 20.8% 21.4% $9.66 / ADS 22.1% 22.7% • Completed on December 23, 2013

(Cayman)

Pactera Technology 20-May-13 $7.50 / ADS 41.9% 22.6% $7.30 / ADS 38.1% 19.3% • Signed definitive agreement on October 17, 2013

(Cayman)

iSoftStone Technology 6-Jun-13 $5.85 / ADS 28.3% 27.7% n.a. n.a. n.a. • Ongoing discussion

(Cayman)

Spreadtrum Technology 21-Jun-13 $28.50 / ADS 41.8% 40.2% $31.00 / ADS 54.2% 52.4% • Completed on December 31, 2013

(Cayman)

Charm Comm. Media 30-Sep-13 $4.70 / ADS 14.1% 13.3% n.a. n.a. n.a. • Ongoing discussion

(Cayman)

RDA Microelectr. Technology 11-Nov-13 $18.50 / ADS 40.8% 53.4% $18.50 / ADS 40.8% 53.4% • Signed definitive agreement on November 11, 2013

(Cayman)

Shanda Games Technology 24-Jan-14 $6.90 / ADS 38.2% 52.3% n.a. n.a. n.a. • Ongoing discussion

(Cayman)

AutoNavi Technology 10-Feb-14 $21.00 / ADS 37.9% 39.9% n.a. n.a. n.a. • Ongoing discussion

(BVI)

Median Premium (Cayman-incorp) 33.1% 26.5% 38.1% 30.6%

Median Premium (Overall) 35.8% 31.1% 38.1% 33.5%

Cayman-incorporated

Notes

Sources Public Filings and Announcements, CapIQ

1. Announced and ongoing or successfully completed going-private transactions of US-listed Chinese companies since 2010, with transaction equity value > US$250MM

2. Approximate equity values of initial offer based on available public disclosure

3. Unaffected VWAP prior to indicative offer announcement

4. Initial offer consists of US$1.60 in cash and 0.6 E-House share per CRIC share at E-House share price of $8.36 as of October 27, 2011; revised offer consists of $1.75 in cash and

0.6 E-House share per CRIC share at E-House share price of $4.55 as of December 22, 2011; price at signing is lower than announcement price due to E-House price drop

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Successful games are highly scalable, translating to high margins and sustainable cash flows

Projections assume long-term growth to be supported by long life-cycle of existing franchises, introduction of new MMO titles through both self-development and licensing and diversification into webgames and mobile games

However, projections are highly sensitive to successful launch of game titles

Assumptions

Valuation Date 1/1/14 WACC 13.5% PGR 2.0% Implied 2013A EBITDA Multiple 13.8x Implied 2014E EBITDA Multiple 12.8x

Discounted Cash Flow Analysis

Based on Management Projections

Illustrative DCF Value Based on Management Projections

US$MM

For Fiscal Years Ending December 31,

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Terminal

Revenue 459.9 614.1 712.4 797.9 893.6 1,000.9 1,080.9 1,167.4 1,260.8

% Growth 18.2% 33.5% 16.0% 12.0% 12.0% 12.0% 8.0% 8.0% 8.0% 2.0%

Adjusted EBIT 274.5 360.7 418.4 468.6 524.9 587.9 634.9 685.7 740.5

% Margin 59.7% 58.7% 58.7% 58.7% 58.7% 58.7% 58.7% 58.7% 58.7%

(-) Tax (1) (50.8) (66.8) (77.5) (86.8) (97.3) (108.9) (117.7) (127.1) (137.2)

(+) Depreciation & Amortization 10.9 12.3 13.9 15.5 16.9 18.2 19.3 20.4 21.3

(-) Increase in Working Capital 25.7 30.3 13.0 9.8 10.7 11.6 6.6 7.0 7.4

(-) Capex (12.8) (16.0) (17.8) (18.3) (18.8) (19.3) (19.8) (20.4) (20.4)

(-) Purchase of Intangible Assets (6.5) (6.5) (6.5) (6.5) (6.5) (6.5) (6.5) (6.5) (6.5)

(-) Non-controlling Interest (1.7) 0.5 (17.5) (19.7) (22.1) (24.9) (26.9) (29.2) (31.6)

Unlevered Free Cash Flow 239.2 314.4 325.9 362.6 407.8 458.1 489.9 529.8 573.4 5,086

% Margin 52.0% 51.2% 45.8% 45.4% 45.6% 45.8% 45.3% 45.4% 45.5%

Aggregate Value 3,658

% Terminal Value 44.5%

Net Cash (2) 730

Equity Value 4,388

Value per ADS 17.47

Sensitivity to WACC and PGR Sensitivity to WACC and PGR

Value per ADS Implied 2013A EBITDA Multiple

WACC WACC

12.5% 13.0% 13.5% 14.0% 14.5% 12.5% 13.0% 13.5% 14.0% 14.5%

1.0% 18.25 17.54 16.89 16.29 15.74 1.0% 14.5 13.8 13.2 12.6 12.1

1.5% 18.60 17.85 17.16 16.54 15.96 1.5% 14.8 14.1 13.5 12.9 12.3

PGR 2.0% 18.99 18.19 17.47 16.80 16.20 PGR 2.0% 15.2 14.4 13.8 13.1 12.6

2.5% 19.41 18.56 17.79 17.09 16.45 2.5% 15.6 14.8 14.1 13.4 12.8

3.0% 19.88 18.97 18.15 17.41 16.73 3.0% 16.0 15.2 14.4 13.7 13.1

Notes

1. Assumes management projected long-term tax rate of 18.5%

2. Net cash from balance sheet as of December 31, 2013 and adjusted for Alibaba stake sale of US$199.1MM

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Management WACC shown for

illustrative purposes only

– WACC used by management for impairment accounting purposes

WACC Analysis: Management

Assumptions

Cost of Equity Capital 28.0%

Cost of Debt 6.6%

Equity Weighting 89.8%

Debt Weighting 10.2%

WACC 25.7%

Assumptions

Valuation Date 1/1/14

WACC 25.0%

PGR 2.0%

Implied 2013A EBITDA Multiple 6.5x

Implied 2014E EBITDA Multiple 6.0x

Discounted Cash Flow Analysis

Based on Management Projections and Management WACC Assumption – for Illustrative

Purposes Only