Why Tencent's Pony Ma is making a play for Ubisoft

The Chinese tech giant is paying $456 million for 5% stake in the company behind Rainbow Six and Assassin’s Creed, extending a global gaming shopping spree.

China's Tencent is adding yet another piece to its ever-growing entertainment and gaming empire.

The technology giant paid €369 million ($456 million) for a minority stake in Ubisoft Entertainment, the French game developer said in a statement on Wednesday.

Tencent, led by tycoon Pony Ma, now owns 5% of the Paris-listed company after buying 5.6 million shares at €66 per share.

With the latest investment, Tencent adds a string of popular first-person shooter and action role-playing games to its game portfolio, including the decades-old Rainbow Six series, Assassin’s Creed, FarCry and Watch Dogs. The new European additions will complement a portfolio that already includes some of Asia's most popular PC and mobile games.

The investment is part of a wider share purchase agreement between Ubisoft and its largest shareholder Vivendi. The French media group has agreed to sell its entire 27.3% stake in Ubisoft for €2.1 billion, marking the end of a hostile takeover attempt.

Ontario Teachers’ Pension Plan also participated in the latest round of investment and acquired a 3.4% stake in Ubisoft.

Tencent’s history of investing in game developers can be traced back to as early as 2011, when it took a majority stake in League of Legends developer Riot Games.

Since then, the company has made investments every year totaling over $13 billion (see chart below), including the blockbuster $8.6 billion deal for Clash of Clans and Clash Royale developer Supercell, according to FinanceAsia calculations.

Including its latest investment in Ubisoft, Tencent paid over $1 billion over the last two months alone.

In February, it invested Rmb3 billion ($474 million) in Shanda Games, which is on the verge of a backdoor listing in China. It also bought a stake in South Korea’s Kakao Games for W100 billion ($94 million) in the same month.

These were made on top of Tencent’s investments in the broader entertainment sector. In March alone, Tencent made a $630 million investment in live-streaming platform Douyu and another $460 million in its rival Huya.

Tencent is also a financial backer behind Bilibili, the Shanghai-headquartered video site that is in the process of a Nasdaq listing.

All these acquisitions helped Tencent evolve as the biggest game developer in China and outpaced its closest rival NetEase, which used to control the bulk of the country’s electronics game market.

Apart from buying game studios, Tencent also produces its own games through its subsidiary Tencent Games. In fact, China’s best-selling games King of Glory and PUBG Mobile are both developed internally by Tencent.

In essence, PC and mobile games have already become a core part of Tencent’s business. The company's gaming revenue rose 38% year-on-year to $15.5 billion last year, accounting for 41% of the group’s total revenue.

Tencent’s strategy in the video game industry marks perhaps the defining difference between itself and another tech giant Alibaba. The latter’s co-founder Jack Ma had said the group would never invest in games because they are detrimental to the society as children get increasingly addicted to games.

The latest Ubisoft deal also extends Tencent’s strategy of taking a partial stake instead of fully acquiring a company.

In Tencent’s annual result announcement on Wednesday, president Martin Lau said the group has invested in over 600 companies and will continue to invest in start-ups that can create synergy with the group.

On a separate note, Tencent's biggest shareholder Naspers was selling a 2% stake in the company through an overnight block trade late Thursday. The trade, which is Naspers' first selldown since becoming a Tencent shareholder in 2001, could raise $10.6 billion based on Tencent's Thursday closing price.

Tencent Games' acquisition history

Target Companies Year  Price Origin Stake Popular games
Riot Games 2011 Unspecified United States Majority League of Legends
Epic Games 2012 $330 million United States 48.4% Gears of War
Activision Blizzard 2013 $2.3 billion United States 25% Call of Duty
Starcraft
CJ Games (Netmarble) 2014 $500 million South Korea 28% Marvel: Future Fight
Lineage II: Revolution
Miniclip 2015 Unspecified Switzerland Majority Soccer Stars
Glu Mobile 2015 $126 million United States 14.6% Deer Hunter
Supercell 2016 $8.6 billion Finland 84% Clash of Clans
Clash Royale
Pocket Gems 2017 $150 million United States 38% War Dragons
Kakao Games 2018 $94 million South Korea Unspecified Lord of Dice
Shanda Games 2018 $474 million China Unspecified The King of Fighters
Ubisoft Entertainment 2018 $456 million France 5% Rainbow Six
Assassin’s Creed

 

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