Tencent Holdings Ltd Chairman and CEO Pony Ma attends a news conference announcing the company’s annual results in Hong Kong, China March 21, 2018. REUTERS/Bobby Yip
HONG KONG (Reuters Breaking views) – China could be doing Tencent a small favour. The technology titans acquisitive ways have led to a dominant position in online books, music streaming and e-sports. That strategy looks increasingly unsustainable as the country’s trustbusters intensify their scrutiny. Fewer deals might be better for the company in the long run anyway.
The powerful State Administration of Market Regulation recently unveiled draft rules targeting monopolistic behavior by internet outfits. Tencent executives downplayed the potential impact on its video games and digital entertainment businesses. The agency fired another warning shot this week, however, and fined one of its subsidiaries and two other companies for failing to properly report past mergers for review.
SAMR acknowledges the $76,000 penalty is tiny relative to Tencents $700 billion market capitalisation, but it also sends a clear message that Beijing is serious about reining in technology giants. To drive the point home, antitrust officials say they are now probing an agreed combination of two Tencent-backed e-sports companies. Other transactions, including Tencents $3.5 billion privatization of search engine operator Sogou, are also being investigated, Reuters reports.
For years, Tencent boss Pony Ma has tried to quickly consolidate market share in new areas. A 2014 union of its e-reading unit and a top rival created what is now $7.4 billion China Literature. A similar deal between the company’s Spotify-like service with China Music Corp in 2016 paved the way for Tencent Music Entertainments blockbuster initial public offering two years later. At the time, it commanded an estimated 80% of the nascent music-streaming market. The merger of DouYu and Huya would likewise make Tencent dominant in video-games streaming.
For now, theres no indication that Chinese companies will be forced to unwind past deals or break up in the same way that Facebook might as it grapples with mounting U.S. legal challenges over its earlier Instagram and WhatsApp acquisitions. Future purchases for Tencent could be tougher, though. A slower pace might be welcomed by shareholders. The company’s M&A sprees have a mixed track record and patchy disclosures, while others such as the Sogou takeover deliver limited strategic benefits. A less acquisitive Ma may ultimately be a good thing.
Breaking views
Reuters Breaking views is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.read more
