I've become a big fan lately of top Internet company Tencent (
0700.HK), which has taken a more focused, measured approach to M&A in a recent string of major acquisitions and tie-ups by China's top three web firms. But the company seems to be rapidly moving into M&A overdrive, following word of three major new deals this week alone, none of which looks too exciting or focused. Whereas nearly all of Tencent's tie-ups to date have been with other online firms, the trio of rumored new deals all involve major players from traditional industries that have little or no experience on the Internet.
Those three partners in those deals are real estate giant Wanda Group, leading independent filmmaker Huayi Bros (Shenzhen: 300027), and stodgy state-run oil refining giant Sinopec (
0386.HK). To its credit, at least Tencent is targeting relatively innovative industry leaders in each of these partnerships. But the fact that it's now straying so far beyond its core Internet competency also looks a bit worrisome, as it resembles a similarly scattered approach being practiced by its top two online rivals, Alibaba and Baidu (Nasdaq: BIDU).
Let's start with the Wanda tie-up, as that's the one that seems to be grabbing the most headlines. That's not too surprising, as Wanda is one of China's most innovative real estate developers, building a highly successful national chain of shopping malls and movie theaters. Its founder, Wang Jianlin, is also one of China's richest men and a highly respected figure for his business acumen.
According to the reports, Tencent will form an e-commerce joint venture with Wanda and Baidu with total investment of
up to five billion yuan (HK$6.29 billion). Wanda would hold a controlling 70 per cent of the venture, while Tencent and Baidu would hold the remaining 30 per cent, translating to investments of about US$120 million each for the two Internet companies.
There's no word on what exactly the new e-commerce joint venture would sell, but perhaps it would focus on products from some of Wanda's larger retail partners, and also on its movie theaters. Perhaps there's also a real estate angle, which would follow another deal earlier this week that saw Alibaba team up with leading residential property builder Vanke (
2202.HK; Shenzhen: 000002) to sell property
at a discount online.
It's clear that Wanda is the driving force behind this initiative, and Tencent and Baidu simply want to sign on as strategic partners. Still, I question the wisdom of this deal for Tencent. Perhaps most importantly, this tie-up could create waves for Tencent's other major e-commerce partnership with JD.com (Nasdaq: JD), which looks far more promising and should be the sole focus of Tencent's e-commerce efforts right now.
