Date
26 September 2017
Tencent's Poly Ma is taking advantage of the internet giant's unparalleled user base and related data traffic. Photo: Bloomberg
Tencent's Poly Ma is taking advantage of the internet giant's unparalleled user base and related data traffic. Photo: Bloomberg

Tencent acquires the mentality of an investment banker

Tencent (00700.HK) appears to have gained the upper hand in the raging merger and acquisition war with arch rival Alibaba. It has strung a series of alliances with internet firms that include Kingsoft, eLong, Sogo, Dianping, Leju and JD.com. And so while Alibaba’s Jack Ma {馬雲} was busy confronting regulatory barriers in the past few months, Tencent chief Pony Ma {馬化騰} spent the entire March on vacation.

Pony Ma can afford to relax because he has a couple of aces up his sleeve. They’re Tencent president and executive director Lau Chi Ping {劉熾平} and chief strategy officer James Mitchell, the Economic Observer reveals. Both are battle-tested warriors in the investment banking field.

Lau is a veteran Hong Kong investment professional with over 10 years’ experience in initial public offerings and mergers and acquisitions. He held senior positions at Goldman Sachs and McKinsey & Co. before joining Tencent. It is said that Lau became well acquainted with Pony Ma during Tencent’s IPO in 2004.

Mitchell once worked at Goldman Sachs’ New York office and is a distinguished analyst who specializes in such sectors as telecommunications, mass media and entertainment.

With the two generals on board, investment banking thinking now plays an integral role in Tencent’s aggressive business expansion.

The firm’s last-minute acquisition of a 15 percent stake in JD.com before its US IPO bears witness to this mentality. As some market watchers have observed, Tencent’s move is a vote of confidence intended to dramatically boost JD.com’s IPO pricing. And in view of the stock value increment, Tencent stands a high chance of recouping its initial US$215 million investment.

Tencent’s e-commerce platforms like wanggou.com {QQ網購} and paipai.com {拍拍網}, dismal laggards in the competition, can be fully integrated into JD.com’s ecosystem. Needless to say, shedding underperforming assets is another manifestation of such thinking.

Other equity purchases including Kingsoft, eLong, Sogo and Dianping have something in common, too. Instead of securing a controlling stake, Tencent only bought around 20 percent of the shares to become the second largest stakeholder in those firms.

Previously, the firm adopted a product-oriented approach and was obsessed with gaining controlling shareholding status in mergers and acquisitions. Yet top management soon realized that the company cannot hope to be the leader in each sector that it enters and piggybacking on rival offerings is also unsustainable.

The hallmark of investment banking thinking is exploring ways to maximize the interest of shareholders. That explains Tencent’s focus on having unparalleled user base and related data traffic.

Not only can user base be monetized via value-added services, data traffic can also be channeled into various applications and platforms under the Tencent umbrella or those offered by its allies to popularize new products and bolster the firm’s valuation.

With a market capitalization of HK$1.023 trillion (US$132 billion), Tencent has earned itself a place among the world’s top five internet companies.

It is reported that the firm is recruiting more investment bankers in Hong Kong.

– Contact the writer at [email protected]

CG

 

EJ Insight writer

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