Tencent makes push for overseas mergers

Updated: 2011-03-01 10:59

By Su Zhou (China Daily)

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BEIJING - Tencent Holdings Ltd, one of China's largest Internet service portals, will seek mergers and acquisitions opportunities overseas, a company official told China Daily.

"Tencent has always been seeking proper opportunities for strategic investment and cooperation abroad, including the United States market. And it will continue to do so," said Ye Guozhen, a spokeswoman for the company.

But Ye declined to give more detailed information about Tencent's plans.

Her remarks came after Tencent acquired a majority stake in Riot Games, a Los Angeles-based developer and publisher of online video games. The deal cost Tencent more than $350 million and is the largest overseas investment Tencent has ever made.

Analysts said the positive outlook for Riot Games' free action strategy game League of Legends on the mainland prompted Tencent to choose Riot Games. League of Legends was voted the most popular online game by Chinese online gamers in 2010.Tencent has been operating the game, which earns money through the sales of virtual items, since 2008.

Tencent has been expanding its business overseas and has invested heavily in the past few years. It has been active in the US, Russia, India, Vietnam, Thailand and some eastern European countries along with its large shareholder Naspers, a South Africa-based multinational media company.

After the deal was confirmed, Goldman Sachs released an investment report that said Tencent will be increasingly acquisitive as it competes with rivals such as Facebook, Activision and Baidu for global opportunities.

"There is no doubt that Tencent has the ambition to be more international," Cao Junbo, chief analyst from iResearch Consulting Group, said. "Tencent is a major player in China and has already monopolized many Internet productions in the domestic market. Tencent has to seek more chances in the overseas market with the development of the Internet industry.

While China's Internet game market was worth 32.74 billion yuan ($5 billion) in 2010, according to a report by iResearch Consulting Group, its growth has slowed over the last three years and it grew by only 21 percent in 2010.

Tang Mingjun, an analyst from Shenyin & Wanguo Securities, said Tencent's overseas investments would spur its development in the Chinese Internet industry, especially the online game sector.

"Purchasing overseas online game companies will benefit Tencent, not only in profitability, but also, in its research and development capability in the long run," Tang said. "Tencent also gets the chance to acquaint itself with the online game market in the US."

With nearly 50 percent of its profits coming from online games, Tencent has tried to develop its own online games in the past years, but the most popular games on the Tencent website, like Dungeon & Fighter and Cross Fire, are productions of South Korean and US developers. Tencent just has the rights to operate them on the mainland.

"Tencent wants to grap the chance to improve its own ability to lead the development of original online games in China," Tang said.


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