Tencent to buy majority stake in ‘Clash of Clans’ maker

Tencent is to buy a majority stake in the Finnish maker of the mobile game Clash of Clans from Japan's SoftBank for $8.6 billion, in a deal that will turn the Chinese technology company into an international online gaming superpower.

The takeover of 84 per cent of Supercell, which values the gaming group at about $10.2 billion, represents the biggest overseas acquisition for the Hong Kong-listed operator of mobile messaging app WeChat. Tencent has already made several gaming investments in the US including Riot Games, Glu Mobile and Epic Games.

The acquisition, which was supported by a group of minority investors, is the latest in a wave of large Chinese overseas deals this year. The overall number of outbound deals made by Chinese companies is nearly $120 billion, shattering last year’s record of $111.5 billion, according to Thomson Reuters.

The latest move by a Chinese tech company comes at time when SoftBank, one of Japan’s telecom and internet stars, is going through a tougher period.

Sale

The sale marks a reversal in strategy for the Japanese group, which took a majority stake in Supercell in 2013 and increased its stake only last year - in a move that was considered a long-term strategic investment.

The acquisitive Japanese company has recently stepped up the sale of assets to reduce its debt pile which has increased threefold since the $22 billion acquisition of Sprint, the fourth-largest US telecoms operator, in 2013. Its interest-bearing debt now totals ¥11.9 billion ($114 billion).

SoftBank recently agreed to sell $10 billion worth of Alibaba shares in a transaction that would cut its stake in the Chinese ecommerce group to about 27 per cent from 32.2 per cent. The Japanese group also said it would sell most of its stake in GungHo Online Entertainment back to the mobile game maker for ¥73 billion.

Earlier this year, it also sold its $250 million stake in Hollywood studio Legendary Entertainment to China’s Dalian Wanda.

Supercell has outperformed rivals with a strategy focusing on a small number of titles. It only released its fourth game earlier this year: Clash Royale, a card game based on the still immensely popular Clash of Clans. It has also been one of the few gaming companies to combine success in Asia with dominance in Europe and the US.

Earnings

Its sales rose by 36 per cent to €2.11 billion in 2015 after tripling in 2014, while earnings before interest, tax, depreciation and amortisation increased by 65 per cent from a year earlier to €848 million.

Despite Supercell’s robust performance, analysts said SoftBank’s exit was timely since it was able to clinch a high valuation and reduce its exposure to a volatile industry.

SoftBank has said the asset sales are to bolster its balance sheet, but some investors expect chief executive Masayoshi Son to use the funds to fuel his next big bet.

“The company says the money will be used to repay debt but we don’t know what’s going to happen in reality since it never says what’s really on its mind. It could be another big new investment,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities.

Tencent, a rival to Alibaba with a market capitalisation of $210 billion, makes most of its money from gaming and social media, but the company has expanded aggressively into other areas such as car-hailing and online payment through acquisitions.

Over the past five years, its biggest acquisitions have been in the gaming sector including a $231 million stake in Riot Games, maker of the hugely popular online game League of Legends, a $494 million stake in South Korea’s CL Games, and a $330 million investment in Epic Games of the US, according to Dealogic.

Morgan Stanley, Fenwick & West and White & Case advised Supercell, while The Raine Group, Morrison & Foerster and Hannes Snellman worked with SoftBank. BofA Merrill Lynch served as financial adviser and Covington & Burling and Slaughter and May as legal advisers to Tencent.

– Copyright The Financial Times Limited 2016