Unpacking the 2021 Sale of Jagex

posted by on 4th February 2021, at 3:18am | Discuss Article

Jagex has been sold yet again. 9 months ago I wrote describing the mysterious sale of Jagex to Macarthur Fortune Holding LLC. In late January 2021 we learnt that Jagex was sold again, this time to The Carlyle Group. The Carlyle Group is an American based investment firm. The Carlyle Group has a multi-billion dollar portfolio and is a known entity unlike Macarthur Fortune Holding LLC.

The sale last spring was very mysterious. It looked as though the previous owner, Fukong Interactive, was using the sale to write off bad debt. After news of the sale to The Carlyle Group was made known, Plutos Sama disputed the sale confirming most of what we suspected last year. In particular, Plutos Sama (a California based private equity firm) claimed that they were the rightful owner of Jagex Ltd.

Plutos Sama claims that in a partnership with Platinum Fortune they purchased Jagex for $530m in spring of 2020. According to gamesindustry.biz Plutos Sama later found out that the previous owner Shanghai Hongtou Network was involved in a Chinese lending scheme. Plutos Sama says this is why they broke the partnership and why Macarthur Fortune Holdings became the owner of Jagex in the spring of 2020.

With this previous purported sale Macarthur Fortune Holdings was founded in February 2020. Platinum Fortune was founded in April 2019. Plutos Sama is a legitimate company that was founded in 2012. The documentation as was translated from Chinese suggests that both Platinum Fortune and Macarthur Fortune Holdings were set up for the sole purpose of these sales.

The chronology of the events goes something like this: In 2016 Jagex was sold for $300m US to the Shandong Hongda Mining Company (run by Shanghai Hongtou Network Technology) to be run by Fukong Interactive. Through 2018, Shanghai Hongtou Network technology experienced issues related to debt and engaged in shady business practices (the Chinese lending scheme). It was in 2018 that Plutos Sama learnt that Shanghai Hongtou Network technologies was looking to sell of assets and Plutos Samas sought to acquire Jagex. The sale was structured as a partnership with Platinum Fortune and Plutos Sama for $530m USD. Before going through though Plutos Sama learnt of the Chinese lending scheme, sold its interest in Platinum Fortune, which resulted in Macarthur Fortune Holdings becoming the owner of Jagex as reported in May 2020.

Plutos Sama also claims in their suit that in August 2020 they were in discussions to take a 55% stake in Shanghai Hongtou Network technologies for $195m. There were no other bidders, as a result they won by default. Because of this Plutos Sama feels that they should have been transferred control of Jagex rather than the Carlyle Group.

This takeover was blocked by majority shareholder Yan Jinggang of Shanghai Hongtou Network multiple times. It was only in collaboration with Yan Jinggang that the Carlyle Group was able to acquire Jagex. This is perhaps the best outcome that could follow from 2+ years of financial troubles at the parent company. Any time a company (Jagex) is used by their parent company to write off the bad debt of their parent company it usually doesn’t end well. The Carlyle Group is a rock solid company in terms of its legitimacy with decades of investing experience.

One factor that many don’t see when it comes to corporate sales is that shell companies and holding companies are entirely legal. The previous arrangement with Platinum Fortune still maintained an aspect of Chinese control by Shanghai Hongtou Network technology. While on paper it looked as though the partnership would’ve been with Platinum Fortune and Plutos Sama, there’s a very real chance that Platinum Fortune was set up by the Chinese parent company. The idea would have been to use funds from Plutos Sama to effectively write off the bad debt of the Shanghai Hongtou Network technology company. While Jagex would have sold, on paper, this would have set Jagex up to be abused further.

Any large corporation operating in China has to follow very precise rules as laid out by the Communist Party of China. China is still a communist state but corporations in China operate at the pleasure of the Chinese government. Corporations in China that operate under shady business practices, don’t follow the law, or face lawsuits can be shut down by the state. Should this have happened to Jagex’s parent company while being owned by a Chinese company, we could have seen further ramifications for Jagex.

The Companies House listing for Jagex confirms that Jagex is now under control of the Carlyle Group. Going forward any disputes will be between The Carlyle Group and Plutos Sama. This is a fresh slate as all ties have been cut with the former Chinese owners and the Carlyle group is an actual known American organization. Jagex will be kept out of the line of fire with this arrangement and players of Jagex’s games and employees at Jagex should not worry.