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Business

Exclusive: Tencent plans to sell Meituan stake worth $24 billion




  • Tencent is seeking to start the Meituan stake sale this year, sources said
  • Sale seeks to appease regulators, cash in on 8-year-old gambling sources
  • Stake sale will likely be done as a block trade – sources
  • The move comes after Tencent’s sale of JD.com, SEA stake
  • Meituan shares fall 10%; Tencent shares rebound

HONG KONG, Aug 16 (Reuters) – China’s Tencent Holdings ( 0700.HK ) plans to sell all or most of its $24 billion stake in food delivery firm Meituan ( 3690.HK ) to appease domestic regulators and cash in on an eight-year – old investment, said four sources with knowledge of the matter.

Tencent, which owns 17% of Meituan, has been in contact with financial advisers in recent months to figure out how to execute a potentially large sale of the Meituan stake, three of the sources said.

The planned sale comes amid China’s sweeping regulatory crackdown since late 2020 against tech heavyweights who aimed to build their empires via stake acquisitions and domestic concentration of market power.

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The crackdown, which has resulted in billions of dollars in fines for the Chinese tech giants, is reshaping the companies by forcing them to make multibillion-dollar divestitures. Tencent, for example, is exiting a number of businesses now and swinging towards the global gaming market. read more

The owner of China’s No. 1 messaging app WeChat first invested in Meituan’s rival Dianping in 2014, which then merged with Meituan a year later to form the current company.

Based on Meituan’s market capitalization as of Monday, Tencent’s 17% stake is worth $24.3 billion.

Tencent is seeking to start sales by this year if market conditions are favorable, two of the sources said.

It has been to reduce the holdings in portfolio companies partly to appease the Chinese regulators and partly to book large profits on these bets, said three of the sources. The value of shareholdings in listed companies excluding subsidiaries fell to just $89 billion at the end of March from $201 billion in the same period last year, according to the quarterly reports.

“Regulators are apparently not happy that tech giants like Tencent have invested in and even become a major backer of various tech firms that run businesses closely related to people’s livelihoods in the country,” one of the sources said.

Shares of Hong Kong-listed Meituan fell more than 10%, the biggest daily percentage decline in five months, according to the Reuters report. Tencent shares fell more than 2% in Tuesday afternoon trading before recovering to 1%.

Tencent declined to comment. Meituan did not respond to a request for comment.

All the sources declined to be named due to confidentiality restrictions.

Tencent in December announced the sale of about 86% of its stake in JD.com Inc ( 9618.HK ), worth $16.4 billion, weakening ties with China’s second-largest e-commerce firm. read more

A month later, it raised $3 billion by selling a 2.6% stake in Singapore-based gaming and e-commerce company SEA Ltd ( SE.N ), which was seen as a move to cash in on the investments at the same time as the business strategy was adapted. read more

Tencent has not pinned the sale of JD.com and SEA shares on the regulatory crackdown.

The sale of the Meituan holdings is likely to be conducted via a block trade in the public market that typically takes a day or two from marketing to completion, according to two of the sources.

The planned Meituan stake sale via block trade will be significant, coming after Dutch technology investor Prosus’ sale of a 2% stake in Tencent last year for $14.7 billion in what is billed as the world’s largest block trade.

The block trade would be a quick and agile way for Tencent to offload the shares, they added, compared to distributing them as dividends or negotiating with a private buyer.

REGULATORY DIRECTION

The regulatory crackdown in China came after years of a laissez-faire approach that drove growth and deal-making at breakneck speed.

To fall in line, Tencent has made sales in portfolio companies a focus of its deal team this year and next year, one of the sources said.

Analysts had expected Tencent to sell stakes in other portfolio companies following the sale of JD.com and SEA shares.

Citi analysts said in a report in January that they believed Tencent would further evaluate and reallocate funding from more established investments to newer technology ventures to ride the industrial internet growth opportunity and to align with its social sustainability initiatives.

Besides Meituan, Tencent also has stakes in e-commerce company Pinduoduo Inc ( PDD.O ), video platform Kuaishou ( 1024.HK ), ride-hailing champion Didi, carmaker Tesla ( TSLA.O ) and streaming service Spotify ( SPOT.N ) .

The move has caused pain for Tencent as well as others.

Tencent reported in May that its quarterly profit had halved from a year ago and revenue had stagnated, blaming cuts in ad spending from its consumer, e-commerce and travel businesses for its worst performance since it went public in 2004. read more

Last month, China’s market regulator imposed the latest fines on Tencent and Alibaba, as well as a number of other firms, for failing to comply with antitrust rules on transaction disclosure. read more

The regulator also blocked Tencent’s proposed $5.3 billion merger of the country’s top two video game streaming sites DouYu and Huya last year on antitrust grounds.

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Reporting by Julie Zhu and Kane Wu; Editing by Sumeet Chatterjee and Muralikumar Anantharaman

Our standards: Thomson Reuters Trust Principles.



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