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

  • Tencent seeks to initiate sale of Meituan stake this year – sources
  • Sale seeks to appease regulators and monetize 8-year-old betting sources
  • Sale of stake likely to be made as a block transaction – sources
  • This decision comes after the sale by Tencent of JD.com and the participations of SEA
  • Meituan shares sink 10%; Tencent shares rally

HONG KONG, Aug 16 (Reuters) – China’s Tencent Holdings (0700.HK) plans to sell all or part of its $24 billion stake in food delivery company Meituan (3690.HK) to appease national regulators and monetize an 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 to determine how to execute a potentially large sale of its Meituan stake, three of the sources said.

The planned sale comes amid China’s sweeping regulatory crackdown since late 2020 against tech heavyweights that aimed to build their empire through stake acquisitions and a national concentration of market power.

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The crackdown, which has resulted in billions of dollars in fines for Chinese tech giants, is reshaping companies by forcing them into multi-billion dollar divestments. Tencent, for example, is now exiting a corporate group and moving into the global gaming market. Read more

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

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

Tencent is looking to launch the sale sometime this year if market conditions are favorable, two of the sources said.

He has reduced his stakes in holding companies partly to appease Chinese regulators and partly to make big profits on those bets, three of the sources said. The value of its stakes in publicly traded companies, excluding its subsidiaries, fell to just $89 billion at the end of March, from $201 billion in the same period last year, according to its quarterly reports.

“Regulators are apparently not happy that tech giants like Tencent have invested in and even become big supporters of various tech companies that run businesses that are closely tied to people’s livelihoods in the country,” the statement said. one of the sources.

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

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

All sources declined to be named due to confidentiality constraints.

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

A month later, he 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 decision to monetize his investment while adjusting his business strategy. Read more

Tencent did not link the sale of JD.com and SEA stakes to regulatory repression.

The sale of the Meituan stake will likely be executed via a public market block transaction that typically takes a day or two from market to completion, according to two of the sources.

The planned sale of Meituan’s stake via block trading would be significant and comes after Dutch tech investor Prosus sold 2% of Tencent’s stake last year for $14.7 billion, representing the largest block trade in the world.

The block exchange would be a quick and smooth way for Tencent to offload shares, they added, compared to distributing them as dividends or trading with a private buyer.

REGULATORY GUIDANCE

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

To align, Tencent has made divestments in its portfolio companies a priority for its deals team this year and next, one of the sources said.

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

Citi analysts said in a report in January that they believe Tencent will further assess and reallocate funding from more established investments to new tech companies to take advantage of the Industrial Internet growth opportunity and align on its social sustainability initiatives.

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

The crackdown hurt Tencent as it did others.

Tencent reported in May that its quarterly profit had halved from a year ago and revenue had stagnated, blaming ad spend cuts by consumer, e-commerce and travel companies for its worst performance since its initial public offering in 2004. read more

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

The regulator also blocked Tencent’s proposed $5.3 billion merger of the country’s two major 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: The Thomson Reuters Trust Principles.

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