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

Exclusive: Tencent plans to divest Meituan stake worth $24 billion
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  • Tencent wants to close the sale of the Meituan partnership this year—sources
  • Sales want to please regulators, monetize 8-year-old bet-sources
  • Stock exits are probably done as block trades – sources
  • The move comes after Tencent divested its JD.com, SEA stake
  • Meituan shares sink 10%; Tencent share recovery

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

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

The planned sale comes against the backdrop of China’s sweeping regulatory crackdown on tech heavyweights in late 2020 that have aimed to build their empires through share acquisitions and the domestic concentration of market power.

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That crackdown, which has resulted in billions of dollars in fines for Chinese tech giants, is reshaping the companies by forcing them to make multibillion-dollar investments. For example, Tencent is now exiting a clutch of businesses and moving 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 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 looking to start selling by this year if market conditions are favorable, two of the sources said.

It is reducing holdings in portfolio companies partly to appease Chinese regulators and partly to book hefty profits on those bets, three sources said. According to its quarterly report, the value of its shareholdings in listed companies excluding its subsidiaries fell to just $89 billion at the end of March from $201 billion in the same period last year.

“Regulators are clearly not happy that a tech giant like Tencent has invested in and even become a big supporter of various technology companies that do business closely with the livelihood of the people of the country,” a source said.

Shares in Hong Kong-listed Meituan fell more than 10%, the biggest daily percentage drop in five months, after the Reuters report. Shares of Tencent fell more than 2% in afternoon trading on Tuesday before recovering 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 announced in December to divest about 86% of JD.com Inc.’s stake (9618.HK)Worth $16.4 billion, weakening its relationship 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 monetize its investment while adjusting the business strategy. Read more

Tencent did not pin the investment in JD.com and SEA shares to the regulatory crackdown.

The sale of Meituan Holdings will likely be carried out through a block trade in the public market that usually takes a day or two to complete from marketing, according to two of the sources.

The planned Meituan stake sale would be large through a block trade, and comes after Netherlands-based technology investor Prosus sold 2% of Tencent shares for $14.7 billion last year in what is billed as the world’s largest block trade.

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

Regulatory directives

The regulatory crackdown in China came after years of an unsolicited view that created growth and deals at a catastrophic pace.

To get in line, Tencent has invested in portfolio companies for its deals team this year and next, a source said.

Analysts had expected Tencent to shift stakes in other portfolio companies after investing in JD.com and SEA shares.

Citi analysts said in a report in January that they believe Tencent will further evaluate and reallocate funds from more established investments to new technology ventures to capitalize on industrial internet growth opportunities and align with its social sustainability initiatives.

Besides Meituan, Tencent also holds stake in e-commerce company Pinduoduo Inc (PDD.O)Video platform Kuaishou (1024.HK)Ride-hailing champion Didi, automaker Tesla (TSLA.O) and streaming service Spotify (SPOT.N).

The crackdown has hurt Tencent like no other.

Tencent reported in May that its quarterly profit had halved from a year earlier and revenue had stagnated, blaming cuts in advertising spending in its consumer, e-commerce and travel businesses for its worst performance since going public in 2004. Read more

Last month, China’s market regulator imposed the latest fines on Tencent and Alibaba, as well as other companies, for failing to comply with anti-monopoly rules on transaction disclosures. Read more

The regulator also blocked Tencent’s proposed $5.3 billion merger of DouYu and Huya, the country’s top two videogame streaming sites, last year.

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Reporting by Julie Zhu and Ken Wu; Edited by Sumit Chatterjee and Muralikumar Anantharaman

Our values: Thomson Reuters Trust Policy.

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