Tencent to Distribute $20 Billion Meituan Stake as Dividend

(Bloomberg) — Tencent Holdings Ltd. pledged to distribute the vast majority of its shares in meal supply large Meituan to buyers, as China’s social media chief ramps up plans to scale back its intensive holdings internationally’s largest web trade.

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Tencent, which had introduced plans to pare its stake in on-line retailer JD.com Inc., will distribute greater than 958 million Class B inventory in Meituan as a particular dividend to present shareholders. Tencent introduced the transfer because it reported income shrank for the second straight quarter, underscoring the extent to which China’s worsening economic system is hurting its largest personal companies.

The choice marks one other milestone in Tencent’s evolution from sprawling web empire with investments throughout a lot of China’s tech sphere to a extra centered, cost-conscious gaming and social media operator. Its exit from JD and now a lot of Meituan comes after Xi Jinping imposed a sequence of withering curbs on the trade in 2021, together with restrictions on play time and content material.

Tencent executives had beforehand denied it meant to promote its slice of Meituan, China’s chief in meals supply. The inventory to be doled out, valued at about HK$155 billion ($19.9 billion), marks about 91% of Tencent’s Class B stake. Aside from JD and Meituan, Tencent additionally owns a part of Kuaishou Expertise, Didi International Inc. and Bilibili Inc.

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The transfer marks one other retreat for Tencent, which together with Alibaba Group Holding Ltd. held sway over a lot of China’s tech sector.

China’s web trade has since made peace with a brand new period of sedate development, shifting focus to enhancing profitability from chasing market share after Beijing’s crackdown wiped greater than $1 trillion off their mixed market worth in 2021. Whereas regulators have eased up on their marketing campaign in opposition to tech, the once-freewheeling sector stays saddled by weak shopper spending and strict Covid restrictions.

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Tencent’s income fell 2% to 140.1 billion yuan ($19.8 billion) within the September quarter, in contrast with the common projection for 141.4 billion yuan. Web revenue got here in at 39.9 billion yuan, versus the 25.2 billion yuan estimate. Shares in Prosus, Tencent’s single largest shareholder, rose in Europe.

Chinese language tech shares recovered a few of their losses this month, after the Communist Social gathering started pulling again from its Covid-Zero playbook and supplied extra incentives to the Biden administration to work collectively. Xi Ji’s shift on these fronts, coupled with perceptions of a renewed deal with reviving the world’s No. 2 economic system, is spurring hypothesis that Beijing will start to unshackle the personal sector.

Tencent stays weak to macroeconomic headwinds. Tighter advertising and marketing budgets worldwide and rising competitors from TikTok-owner ByteDance Ltd. are chopping into digital promoting earnings. In cloud computing, income fell this 12 months as the corporate works to chop loss-making contracts.

In its core video gaming operations, Tencent has but to search out its subsequent huge hit to take up the slack from Honor of Kings, first launched in 2015. Just one Tencent recreation has been authorized for home launch since Beijing’s censors resumed handing out licenses in April.

Tencent is co-developing a brand new cell recreation with Capcom Co. for the Japanese studio’s common Monster Hunter franchise, in a bid by China’s premier recreation developer to remake itself for the worldwide market.

The corporate’s urge for food for overseas gaming belongings is growing at a time when it’s divesting different belongings and spending extra judiciously at house. In September, the Shenzhen outfit spent roughly $300 million to double its stake in Ubisoft Leisure SA.

Whereas buyers have cheered Tencent’s current cost-cutting, some are clamoring for sooner fixes to its prime line than long-term gaming bets. Consideration is on development at its WeChat brief video feed, which has but to completely monetize its content material with e-commerce and promoting choices.

–With help from Peter Elstrom, Vlad Savov, Jane Zhang, Sarah Zheng, Jennifer Ryan and Ville Heiskanen.

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