Tencent is negotiating a new deal that would boost its stakes in Supercell, a Finnish smartphone game developer, at a valuation of roughly $11 billion, according to two people with knowledge of the talks, The Information reported on December 10.
Tencent will buy out some of the shares held by its partners in a consortium that bought a controlling stake in the 2016 deal. Those partners include Chinese state-backed financial groups Citic Capital, Avic Capital and China Cinda Asset Management, among others. Some of the investors are disappointed with the way the investment turned out.
For Tencent, the acquisition of a majority stake in Supercell in 2016 is a bold bet that it can continue to replicate the success of Clash of Clans, a game released in 2012. Analysts said at the time that Tencent could help Supercell’s games find more users in China, the world’s highest-revenue gaming market.
However, Supercell’s filings to regulators showed that its revenue declined every year between 2016 and 2020. By 2018, it was reported that some members of Tencent‘s investor alliance were worried about its future returns.
In 2019, Tencent increased its stakes in Supercell by buying shares of other members of the investor alliance, and transformed Supercell into its consolidated subsidiary. By the end of last year, Tencent had an shareholding ratio of 70% in Supercell.
There are also some signs that Supercell is recovering. The firm’s Clash Royale has been launched for five years, but its revenue last year exceeded $3 billion, according to Sensor Tower, a research company. In August this year, Supercell released a new urban construction game Everdale, as well as a beta version.
In addition, Tencent‘s other overseas investments have brought huge financial benefits to the company. Tencent‘s strategic investment in Krafton, a Korean online game developer, enabled the latter to develop a mobile version of PUBG, which is very popular around the world. Tencent also owns a 40% stake in Fortnite’s developer Epic Games, which was recently valued at $17.3 billion.
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This year, Tencent has accelerated its global expansion not only by investing in other companies, but also by expanding its overseas business. Last week, Tencent set up a new international game publishing department “Level Infinition” in Amsterdam and Singapore. In July, Tencent‘s game development arm, TIMI, opened a new studio in Montreal, its third in North America after Los Angeles and Seattle.