DEALTALK-China’s Tencent on prowl for global Internet buys

* Scouting for stakes in more firms in Brazil, India,
Vietnam

* Could use $1 billion cash hoard or shares to fund
purchases

* Shares have risen 42-fold since IPO in 2004

By Melanie Lee

SHANGHAI, May 17 (BestGrowthStock) – China’s No.1 online gaming
operator Tencent Holdings (0700.HK: ), armed with $1 billion in
cash, wants to take over the world or at least the BRIC nations
(Brazil, Russia, India, China) and Southeast Asia to start
with.

Tencent, China’s most valuable Internet firm with a market
capitalisation bigger than eBay (EBAY.O: ) and Yahoo (YHOO.O: ),
turned heads in April when it paid $300 million in cash for 10
percent of Digital Sky Technologies (DST), operator of Russia’s
most popular social networking site and an investor in
Facebook.

The Chinese firm, with its chubby penguin logo that has
become synonymous with the Internet in China, was also
shortlisted to buy AOL’s (AOL.N: ) chat messaging platform ICQ
and vying to buy social networking site Friendster, before
eventually losing out to other buyers.

“The DST investment is … part of our strategy to
gradually go international,” Martin Lau, Tencent’s president
said in a conference call last week, after the company reported
a record quarterly profit, up 70 percent from a year ago.
[ID:nTOE64B083]

Analysts said Tencent could be looking for deals in Brazil
and to boost its stakes in game operators in Vietnam and India.

Having mastered many of China’s Internet spaces already,
including chat and online games, Tencent, co-founded by the
notoriously media shy Ma Huateng, also known as Pony Ma, is
using its expertise and cash to try to export its success to
other developing markets, analysts said.

It is China’s largest online game operator, and runs a
wildly popular instant messaging service called QQ because the
letters sound like “cute cute, with over 580 million users.

Tencent, along with rivals Shanda Games (GAME.O: ) and
NetEase.com (NTES.O: ), is riding strong on the popularity of
Internet chat and gaming in the world’s largest Internet and
mobile markets.

Tencent could also use stock to fund purchases, with shares
that have logged an enviable 42-fold increase since their 2004
IPO, rising from an offering price of HK$3.70 to their current
price of around HK$155.

“We are all very worried,” said an executive from an online
game company in China, who declined to be named when speaking
about a rival. “They are really bent on being big”.

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Tencent’s expansion plans come as China’s Internet market
becomes more cut-throat, with a wide range of martial arts and
fantasy games jockeying for attention from an audience of
increasingly sophisticated gamers.

Analysts said the global route is the logical choice for
the cashed-up company.

“If they really want to be a global Internet company, they
really need to be present in countries other than China,” said
Citigroup analyst Alicia Yap. “Look at Google, it is all around
the world.”

Earlier this year, Tencent, was said to be a possible
contender for some of China’s Internet search business with the
vacuum left by Google (GOOG.O: ). [ID:nTOE60D016]

FOREIGN FORAYS

Tencent already has strong overseas connections through its
30-percent ownership by South Africa’s largest media group
Naspers (NPNJn.J: ).

In 2008, Tencent agreed to pay $7.5 million for an equity
stake in Naspers’ Indian unit MIH India, which owns a
Facebook-like site called ibibo. Tencent also owns a minority
stake in VinaGame, Vietnam’s largest online game operator.

“We want to find markets where there is big potential for
growth and particularly if there are similarities we can draw
from the experience of China,” Lau said in the call.

Tencent’s foreign forays also mesh with a broader trend
that has seen cash-rich Chinese Internet firms shop for global
assets.

Shanda Games snapped up U.S. based game developer Mochi
Media early this year [ID:nTOE60B05A], and Perfect World
(PWRD.O: ) is said to be on the prowl for overseas assets.

Tencent, co-founded by the notoriously media shy Ma
Huateng, also known as Pony Ma, is taking the approach of a
passive investor, similar to Naspers’ position in the Chinese
company.

Given the different Internet conditions in each country,
analysts said it is unlikely Tencent will take an active
advisory stake in any of the companies it invests in or enter
the countries directly.

Stock Market Analysis

(Reporting by Melanie Lee; Editing by Doug Young, Ken Wills
and Valerie Lee)

DEALTALK-China’s Tencent on prowl for global Internet buys