Tencent heads for high score in gaming M&A
29/12/2016 01:26
(The author is a Reuters Breakingviews columnist. The opinions expressed are
her own.)
By Robyn Mak
HONG KONG, Dec 29 (Reuters Breakingviews) - Tencent's 0700.HK M&A could
hit new levels in 2017. The $233 billion Chinese tech giant will probably follow
its purchase of mobile-games maker Supercell with similar-sized deals abroad. A
bolder move would be buying U.S. heavyweight Activision Blizzard ATVI.O .
As well as operating WeChat, the ubiquitous chat app, Tencent is dominant in
gaming at home, accounting for half of industry revenue. But it is a weakling
overseas, with many games lacking global appeal: data tracker Newzoo estimates
just 15 percent of gaming revenue came from outside of Asia in 2015. If Tencent
is truly ambitious about long-term growth, it will need to tap gamers abroad.
So far, Tencent has taken stakes in small outfits from South Korea's CJ
Games to Glu Mobile GLUU.O in San Francisco. In June it stepped things up by
agreeing to buy Supercell, the Finnish group behind "Clash of Clans", in an $8.6
billion deal.
Similar buys will surely follow. Japanese-listed Nexon 3659.T , with a $6
billion market value, smaller counterpart GungHo 3765.T , or South Korea's NC
Soft 036570.KS could be prime targets: all three have games that are already
popular in the region, and publish these in China through Tencent.
The real prize would be the $27 billion Activision Blizzard. The U.S. gaming
group's stable runs from "Call of Duty", the best-selling military videogame, to
mobile hit "Candy Crush". Its newest release, "Overwatch", is quickly becoming a
serious contender to Tencent's "League of Legends".
Tencent already owns 5 percent of Activision. The remainder, with a 30
percent takeover premium to November's volume-weighted average stock price,
would cost just under $39 billion, including assumed debt. If Tencent borrowed
the whole amount, that would require debt of about 2.7 times combined EBITDA,
which should hit $14.4 billion in 2017, according to analyst forecasts compiled
by Thomson Reuters.
Taking on that much debt would be a gutsy move. Alternatively, Tencent could
sell fresh equity in Hong Kong to raise funds. Or Tencent could take a more
cautious approach, as it did for Supercell: putting together a consortium of
buyers and keeping the deal off its own balance sheet. Pulling this off would
not be easy. But it would take Tencent's global reach up a level.
On Twitter https://twitter.com/mak_robyn
CONTEXT NEWS
- Revenues in China's online gaming market will reach 221 billion yuan ($32
billion) in 2017, representing an increase of 20.8 percent, according to data
from iResearch.
- Hong Kong-listed Tencent is China's largest gaming company by revenue. In
June, it led a consortium to buy 84.3 percent of Finnish mobile games-maker
Supercell in a deal worth $8.6 billion. The deal values Supercell's equity at
$10.2 billion.
- For previous columns by the author, Reuters customers can click on
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(Editing by Quentin Webb and Nicolle Liu)
((Robyn.Mak@thomsonreuters.com; Reuters Messaging:
robyn.mak.thomsonreuters.com@reuters.net))
Keywords: TENCENT M&A/BREAKINGVIEWS