MULTINATIONALS: Shanda, Tencent in Global P2P, Gaming Buys

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Bottom line: Shanda’s purchase of 12 percent of LendingClub reflects its new investment focus on global financial services, while Tencent’s pursuit of a major Finnish game maker is consistent with its previous M&A strategy.

Tencent eyes Finland’s Supercell

Major outbound M&A deals involving 2 of China’s largest private firms are in the headlines today, with new moves by private equity investor Shanda and Internet giant Tencent (HKEx: 700) reflecting their latest buying priorities. The first deal has Shanda buying a large stake in LendingClub (NYSE: LC), the peer-to-peer (P2P) US lending pioneer whose shares have tumbled recently due to a scandal involving some of its loans. The other headline has Tencent looking to take control of Finnish game maker Supercell, in a deal that would be its biggest acquisition of all time valued at several billion dollars.

The only common thread among these deals is that both represent major outbound M&A by private Chinese companies. Such M&A has been growing in recent years, though outbound Chinese deals are still largely dominated by state-owned companies in traditional industries. By comparison, Shanda represents a new generation of privately owned private equity firms investing abroad, while Tencent represents another group of globally acquisitive Internet companies.

Let’s begin with the Shanda deal, which is interesting because it provides the newest hint of how the recently launched private equity firm will spend its war chest of billions of dollars. Shanda is technically based in Singapore, but it still retains major operations in China and is headed by Chinese national Chen Tianqiao, whose big cash pile comes from his former online entertainment empire.

The company’s latest investment was revealed in a regulatory filing, and shows it has recently acquired nearly 12 percent of LendingClub following a recent plunge in the company’s stock. (English article; Chinese article) LendingClub shares have lost more than a third of their value over the last 3 weeks, after the company’s CEO resigned due too a scandal that saw it sell some loans to a customer who didn’t want those loans.

Chen has been quite talkative about the purchase, telling media he saw the stock as an attractive buy due to the recent drop in its price. The media reports I’ve read do seem to indicate LendingClub is quite well run and the scandal was relatively minor. The company’s stock actually rose 2.6 percent in the latest session after Shanda’s stake was disclosed.

This particular deal comes just a month after Shanda bought 10 percent of US fund manager Legg Mason in a deal that was probably worth more than $300 million. This newest investment probably involves about $200-$250 million, based on LendingClub’s latest market value, and hints that Shanda will continue to look for more western financial services investments in the $200-$500 million range.

Mega Deal in Core Area

Next there’s the Tencent deal, which is quite a bit larger but less interesting because it comes in the company’s core area of online games. The deal has Tencent in talks to buy the 73 percent of Supercell Oy currently owned by Japan’s Softbank. (English article; Chinese article) In this case the most significant thing about the deal is its size, since the reports say that Supercell is currently valued at more than $5 billion.

That would mean that Tencent would be paying around $3.5 billion for the stake, which should be the company’s biggest purchase of all time. Tencent previously bought a much smaller 6 percent of global gaming giant Activision Blizzard (Nasdaq: ATVI) 3 years ago, in a deal that I calculated would have been worth about $1.4 billion at that time.

Among China’s big 3 Internet companies, Tencent has been the most focused in its acquisition strategy, typically buying assets in its core SNS and gaming strengths while making large strategic investments in partners outside its primary business ares. This latest deal seems to continue that tradition, though I doubt it signals that Tencent will sharply speed up its cautious M&A strategy.

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