ACQUISITION
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Mobile gaming

Tencent eyes mobile gaming growth in acquisition of Finnish developer Supercell for US$8.6 billion

PUBLISHED : Tuesday, 21 June, 2016, 9:47pm
UPDATED : Tuesday, 21 June, 2016, 11:10pm

Tencent Holdings, China’s largest internet company, is poised to ratchet up its international video games business with its acquisition of Finnish mobile game developer Supercell Oy for an estimated US$8.6 billion.

The deal would mark the single biggest investment in a video games company by Tencent, which owns significant stakes in United States-based developers Riot Games, Epic Games, Glu Mobile and Activision Blizzard, as well as South Korean firm CJ Games and Japanese company Aiming.

In a filing with the Hong Kong stock exchange after the close of trading on Tuesday, Tencent chairman and chief executive Pony Ma Huateng said the company has agreed to form a consortium that will buy up to an 84.3 per cent stake in Supercell from owner SoftBank Group Corp and certain Supercell shareholders.

The transaction, which is expected to close in the third quarter, valued Supercell at about US$10.2 billion.

Tencent will provide between US$3 billion to US$4 billion of the purchase price, while the remaining balance will be financed by investments from potential co-investors in the consortium and certain bank borrowings. The total consideration will be payable in three instalments.

Ma said Tencent, which expects to retain a 50 per cent voting interest in the consortium after the deal is closed, has also entered into marketing and co-operation agreements with privately held Supercell for the distribution of its games in mainland China.

Founded in 2010, Supercell has brought four top-grossing games to market on both Apple’s iOS and Google’s Android platforms. Those include Hay Day, Clash of Clans, Boom Beach and Clash Royale, which Supercell estimated as being played by more than 100 million people every day.

According to Tencent president Martin Lau Chi-ping, Supercell will continue to operate independently and remain headquartered in Helsinki.

“Tencent’s investment secures ... our independence and unique culture of small and independent teams. We want Supercell to be the world’s best place for creative people to create games,” Supercell chief executive Ilkka Paananen said.

Masayoshi Son, the chairman and chief executive of SoftBank Group, said that commitment to ensure the Finnish game developer’s independence made Tencent “the ideal partner to take Supercell’s business to the next level”.

The Supercell acquisition would certainly bolster the already formidable games portfolio of Shenzhen-based Tencent, which research company Newzoo has estimated to be the world’s largest video games company by revenue.

Its total games revenue last year reached 56.59 billion yuan, driven by mobile games demand. That was ahead of Microsoft’s total games revenue of US$6.84 billion in the same year.

BNP Paribas analyst Ling Vey-sern said in a research note that Tencent operated six of the top 10 mobile games in mainland China in the first quarter, when it recorded 8.2 billion yuan in mobile games revenue.

China is the world’s biggest video games market, with total revenue of US$24.37 billion last year, according to Newzoo estimates.

Tencent reportedly bought a stake in CJ Games for US$500 million in 2014, which followed its US$330 million investment in Epic Games in 2013 and US$400 million takeover of Riot Games in 2011.