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

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 satisfy domestic regulators and monetize an eight-year-old investment, four knowledgeable sources said.

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

The planned sale comes against the background of China’s sweeping crackdown since late 2020 against tech heavyweights seeking to build their empire through equity acquisitions and domestic concentration of market power.

That crackdown, which has resulted in billions of dollars in fines for the Chinese tech giants, is reshaping companies by forcing them to divest billions of dollars. For example, Tencent is now exiting a series of companies and targeting 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 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 aims to start sales within this year if market conditions are favorable, two of the sources said.

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

“Regulators are apparently not happy that tech giants like Tencent have invested in and have even become a major backer of several tech companies that run businesses closely related to people’s livelihoods in the country,” one of the sources said.

Shares of Hong Kong-listed Meituan fell more than 10%, the largest daily percentage drop in five months, after the Reuters report. Tencent shares fell more than 2% in Tuesday afternoon trading before recovering to gain 1%.

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

All sources were not mentioned due to confidentiality restrictions.

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

Tencent has not pinned the divestment of JD.com and SEA interests to regulatory action.

The sale of the Meituan holding will likely be through a public market block trade, which, according to two of the sources, typically takes a day or two from marketing to completion.

The planned sale of Meituan shares via block trading would be significant, coming after Netherlands-based technology investor Prosus’ sale of 2% of Tencent’s stake last year for $14.7 billion, which was considered the world’s largest block trade.

The block trade would be a quick and smooth way for Tencent to sell the shares, she added, compared to paying dividends or negotiating with a private buyer.

REGULATIONS:

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

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

Analysts had expected Tencent to divest in other portfolio companies after the sale of JD.com and SEA shares.

Citi analysts said in a report in January that they believed Tencent would further evaluate and allocate funding from more established investments to newer technology ventures to capitalize on Internet industrial growth opportunities and align with its social sustainability initiatives.

In addition to Meituan, Tencent also has interests 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 hurt Tencent like others.

Tencent reported in May that quarterly earnings had halved from a year ago and revenues were flat, with cuts in consumer, e-commerce and travel advertising spending being the worst performance since the IPO in 2004. read more

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

The regulator also last year blocked Tencent’s proposed $5.3 billion merger of the country’s two largest video game streaming sites, DouYu and Huya, on antitrust grounds.

Reporting by Julie Zhu and Kane Wu; Editing by Sumeet Chatterjee and Muralikumar Anantharaman

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