Tencent Downplays Offloading Meituan: It Doesn't Mean Strategic Partnership Abandoned

BEIJING, November 16 (TMTPOST)— Chinese tech behemoth Tencent played down its move to offload most of its stakes in Meituan, China’s largest food delivery service provider.

Source: Visual China

“Our overall investment strategy is very clear and it doesn’t mean to abandon those strategic partners, (to distribute more shares) is a response to institution investors’ concern,” Tencent management explained to analyst in an earnings call on Wednesday. “In addition, we have RMB15 billion of free cash flow each year, which is very sufficient and enough for our inputs in infrastructure and new products.”

Tencent’s decision on portfolio is made based on three factors—financial strength, industry postioning and the investment return, the chief strategy officer James Mitchell noted at the call. “We’ve already had very good return on investment, namely the internal return rate (IRR) was around 30%, and if you look at the financials, it's profitable,” Mitchell said. The executive added that Meituan is not as profitable as JD.com in terms of distribution for it is also investing in community group purchase and other new services for expansion, which is a target market in the long run.

Earlier Wednesday, Tencent announced it will distribute nearly 958 million Meituan Class B ordinary shares the company directly held to eligible shareholders, as a special interim dividend based on "one Meituan Class B ordinary share for every 10 shares of Tencent". Based on Meituan's closing price of HK$162.3 ($20.74) per share on Tuesday, the total market value of Tencent's Meituan shares to be distributed is nearly HK$155.4 billion ($20.3 billion).

The announcement suggests Tencent decided to almost liquidate Meituan since dividend payment involves approximate 90.9% of shares the WeChat owner held. Tencent will hold less than 100 million shares, less than 2% stakes in Meituan when the dividend paid, thus no longer to be its largest shareholder.

The move confirms Tencent is stepping up an exit from its vast internet portfolio, following the similar action it made to JD. Last December, Tencent unveiled a plan to distribute 457.3 million JD’s Class A shares worth of HK$127.69 billion ($16.37 billion) and bring down its stakes in JD from 17% to 2.3%. In early January, It disclosed to start divesting an aggregate of 14,492,751 Class A shares of Sea Limited, cutting equity interests in the most valuable listed company in Southeast Asia from 21.3% to 18.7%. Reports in August said Tencent was weighing to divest all or much of its stakes in Meituan, citing the government’s intention to curb the internet giants’ power.